Mercatus Site Feed http://mercatus.org/feeds/home/publication/why-inflation-matters en Conversations with Tyler: A Conversation with Joseph Henrich http://mercatus.org/events/conversations-tyler-conversation-joseph-henrich contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p class="p1"><b>PARTICIPANTS</b><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><a href="http://mercatus.org/tyler-cowen">Tyler Cowen </a>– Holbert L. Harris Chair of Economics, George Mason University<span style="background-color: #b0b0b0;"><br /></span><span style="font-size: 12px; background-color: white;"><a href="http://heb.fas.harvard.edu/people/joseph-henrich">Joseph Henrich</a> – Professor of Human Evolutionary Biology, Harvard University</span></p> <p class="p1">&nbsp;<b style="font-family: inherit; font-style: inherit; background-color: white;">**Select VIP Seating Available for Media**</b></p> <p class="p1">Contact Bob Ewing, director of media relations<span style="background-color: #b0b0b0;"><br /></span><span style="font-size: 12px; background-color: white;">703.993.4960 (office), 202.494.2567 (mobile),&nbsp;</span><a href="mailto:bewing@mercatus.gmu.edu" style="font-size: 12px; background-color: white;">bewing@mercatus.gmu.edu</a><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1">Joseph Henrich, an expert on the evolution of human cooperation and culture, will join Tyler Cowen for a wide-ranging dialogue as part of the Mercatus Center’s <i>Conversations with Tyler</i> event series.&nbsp;</p> <p class="p1">Henrich’s research has challenged the typical narrative about human evolution to show how our collective brains – our ability to socially interconnect and learn from one another – is the driving factor behind our evolutionary success. Henrich presents these compelling arguments in his latest book, <i>The Secret of Our Success: How Culture is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter</i> (2015).</p> <p class="p1">Co-author of <i>Why Humans Cooperate: A Cultural and Evolutionary Explanation</i> (2007), Henrich’s research seeks to discover the role of culture in shaping our evolution; how evolutionary theory can help us understand how we learn and transmit culture; the role of war and conflict in the evolution of cooperation and sociality; what factors drive innovation and cultural evolution; and ultimately what has allowed humankind to flourish over other species.&nbsp;</p> <p class="p1">Henrich earned his MA and PhD in anthropology from University of California at Los Angeles. He currently teaches at Harvard University as a professor of human evolutionary biology. Additionally, he holds the Canada Research Chair in Culture, Cognition, and Coevolution at the University of British Columbia where he is also a professor in the psychology and economics departments and co-director of the Human Evolution, Cognition and Culture Centre.</p> <p class="p1"><i style="font-family: inherit; font-weight: inherit; background-color: white;">For questions about the event, please contact Julie Burden at&nbsp;</i><a href="mailto:jburden@mercatus.gmu.edu" style="font-size: 12px; background-color: white;"><span class="s1"><i>jburden@mercatus.gmu.edu</i></span></a><i style="font-family: inherit; font-weight: inherit; background-color: white;">.</i></p> <p class="p6"><b>About Tyler Cowen</b></p> <p class="p7"><span style="font-size: 12px; background-color: white;">Cowen is a world-renowned professor of economics, coauthor of the popular economics blog&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Marginal Revolution</i><span style="font-size: 12px; background-color: white;">,&nbsp;cofounder of the award-winning online educational platform&nbsp;Marginal Revolution University, and chairman of the Board at the Mercatus Center at George Mason University.&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Bloomberg Businessweek&nbsp;</i><span style="font-size: 12px; background-color: white;">profiled Cowen as “America’s Hottest Economist,”&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Foreign Policy&nbsp;</i><span style="font-size: 12px; background-color: white;">named Cowen one of the “Top 100 Global Thinkers,” and an&nbsp;</span><i style="font-family: inherit; font-weight: inherit; background-color: white;">Economist</i><span style="font-size: 12px; background-color: white;">&nbsp;survey counted Cowen as one of the most influential economists of the last decade.&nbsp;</span></p> <p class="p6"><b>About the&nbsp;Conversations with Tyler&nbsp;Event Series</b></p> <p class="p8"><span style="font-size: 12px; background-color: white;">The Mercatus Center’s&nbsp;Conversations with Tyler&nbsp;series hosts world-class thought leaders to discuss how ideas, cutting-edge research, and applied economics can bring solutions to society’s most pressing problems.</span></p> <p class="p3">&nbsp;</p> http://mercatus.org/events/conversations-tyler-conversation-joseph-henrich Wed, 29 Jun 2016 15:21:01 -0400 The Brexit Comes At A Steep Price http://mercatus.org/expert_commentary/brexit-comes-steep-price <h5> Expert Commentary </h5> <p class="p1"><span class="s1">British voters delivered a shock to global markets on Thursday with their 52-48% vote to leave the European Union. When the turmoil subsides, more sober-minded Brits may come to regret their decision to abandon their four-decade membership in the continental-sized common market.</span></p> <p class="p1"><span class="s1">For now, Great Britain remains a full member of the EU. Once it initiates its exit under Article 50 of the Lisbon Treaty, divorce proceedings could take as long as two years. Meanwhile, Britain remains the world’s fifth largest economy, a nation open to the world and a natural ally of the United States.</span></p> <p class="p1"><span class="s1">In the longer run, leaving the EU could take a toll on Britain by reducing its trade, investment and, yes, migration ties to the rest of Europe. On migration, the leave side was shameless in whipping up fears about an unchecked inflow from other EU countries. In fact, immigration has been an important component of Britain’s relative economic success.</span></p> <p class="p1"><span class="s1"><b>Post-Brexit Britain may suffer on both jobs and free trade</b></span></p> <p class="p1"><span class="s1">As a member of the EU, Britain enjoys one of the best growth rates and lowest unemployment rates in Europe. In the past three years, while the country has accepted 700,000 immigrant workers from other EU countries, its economy has created another 1 million jobs for native British workers. EU immigrants in Britain are not the poor huddled masses displayed on pro-leave billboards. They are on average better educated than native workers, with 130,000 of them working for the National Health Service as doctors, nurses and care workers. And if a non-EU Britain denies free entry to EU citizens, the status of the 1.2 million Britons working on the continent will be in jeopardy.</span></p> <p class="p1"><span class="s1">A post-Brexit Britain will also lose its duty-free access to the EU market, which buys about half its exports. It can negotiate a trade agreement with the EU, but France and Germany may prove to be difficult negotiating partners. If the UK wants to join Norway and Switzerland as members of the European Free Trade Association as a non-EU member, it will also need to accept the open movement of labor and make a financial contribution to the EU—which backers of the leave vote would find hard to swallow.</span></p> <p class="p1"><span class="s1">Without open access to the huge EU internal market, Britain will be a less attractive place for U.S. companies to invest. Major U.S. multinationals such as Chase Bank are already planning to shift thousands of jobs to France and other EU member states where the domestic business climate may not be as friendly but where they are still inside the huge EU common market.</span></p> <p class="p1"><span class="s1"><b>EU could become even more centralized and bureaucratic</b></span></p> <p class="p1"><span class="s1">The United States can do itself a favor by negotiating a separate free-trade agreement with Britain once it leaves the EU. Such a treaty should come together easily, given Britain’s pro-trade leanings and strong historic ties to the United States. In the longer run, trade will continue to flow across the Atlantic and the English Channel relatively unfettered because of the enormous mutual benefits from existing commercial ties. Just as Britain needs its EU neighbors to prosper, so too, does the EU need Britain to prosper.</span></p> <p class="p1"><span class="s1">More worrying is the institutional impact of Brexit. With Britain out, the EU could become even more centralized and bureaucratic. Externally, its trade relations with the United States will probably become more prickly without Britain’s pro-market and pro-American influence. Within the UK, an independent Scotland may become irresistible. The 62% of Scots who voted to remain in the EU will plausibly argue that they should not be dragged out against their will.</span></p> <p class="p1"><span class="s1">Despite what some commentators claim, this was not a vote against “global capitalism.” Most Britons want their nation to remain an important player in the global economy, with all the opportunity and influence it provides. It was instead a vote of frustration against an EU bureaucracy that was rightly seen as infringing on British sovereignty. The EU elites have only themselves to blame. If serious reforms do not follow, other member states may start heading for the exit as well.</span></p> http://mercatus.org/expert_commentary/brexit-comes-steep-price Wed, 29 Jun 2016 11:25:39 -0400 Hensarling Bill Gives Credence to 'Capital Is King' http://mercatus.org/expert_commentary/hensarling-bill-gives-credence-capital-king <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Announcing his plan to overhaul the Dodd-Frank Act, House Financial Services Committee Chairman Jeb Hensarling signaled agreement with a growing list of policymakers and scholars who argue that the best way to prevent another financial crisis is to embrace simpler, higher capital requirements rather than other prescriptive regulations that just burden banks and limit economic growth.</span></p> <p class="p1"><span class="s1">The very first section of the&nbsp;<a href="http://financialservices.house.gov/uploadedfiles/financial_choice_act-_executive_summary.pdf"><span class="s2">Financial CHOICE Act</span></a>&nbsp;offers banks an "off-ramp" from existing regulatory requirements for those firms meeting a new "well-capitalized" standard. The threshold for obtaining the exemption is a 10% leverage ratio, in which a firm's capital is measured against its assets without any risk weights affecting the calculation.</span></p> <p class="p1"><span class="s1">To be clear, Hensarling is proposing a more rigorous capital standard than any in recent U.S. history. While banks today must comply with a leverage ratio, capital requirements used both by U.S. regulators and in the Basel Committee largely favor risk-based capital ratios,&nbsp;<a href="http://www.usnews.com/opinion/economic-intelligence/articles/2016-03-21/keep-banks-capital-requirements-high-to-protect-against-financial-crises"><span class="s2">which factored in the recent crisis</span></a>. Not only does the Hensarling off-ramp cast off the risk-based method, but his proposed leverage ratio is higher than under current regulation.</span></p> <p class="p1"><span class="s1">For example, the U.S. "gold-plated" version of the Basel Committee's non-risk-based leverage ratio for large banks is just 6% (and 5% for holding companies). Hensarling's proposal favors a tougher hurdle, requiring large banks interested in the off-ramp to raise more capital or further simplify their balance sheets. Many community banks, however, would have less trouble meeting the standard if they have not already.</span></p> <p class="p1"><span class="s1">Yet from a broader perspective, the legislation shows a growing realization that stronger capital requirements alone may have been a more effective, and simpler, solution to regulatory reform than the prescriptive regulatory approach implemented by Dodd-Frank.</span></p> <p class="p1"><span class="s1">That line of thinking is echoed in a recent&nbsp;<a href="http://thf-reports.s3.amazonaws.com/2016/The%20Case%20Against%20Dodd-Frank.pdf"><span class="s2">article</span></a>&nbsp;(co-authored by one of us) arguing that if Dodd-Frank had stopped at sections 606 and 607, which effectively require financial holding companies to maintain "well-capitalized" instead of "adequately capitalized" levels, that might have been a sufficient starting point for reform.</span></p> <p class="p1"><span class="s1">A Richmond Fed&nbsp;<a href="https://www.richmondfed.org/~/media/richmondfedorg/publications/research/economic_quarterly/2006/winter/pdf/walter.pdf"><span class="s2">study</span></a>&nbsp;argues that prior to the establishment of the Federal Deposit Insurance Corp., state regulators often used capital requirements, which increased with the size of the local population, as a barrier to entry. As capital requirements began to fall in the late 19</span><span class="s3"><sup>th</sup></span><span class="s1">&nbsp;century, the number of banks in the U.S. ballooned from about 10,000 in 1900 to almost 31,000 in 1921. Many of the new entrants failed over the next decade, and the number of banks declined back to just over 14,000 by the time the FDIC was established.</span></p> <p class="p1"><span class="s1">Moreover, market discipline requires measuring capital at market value, whether capital consists of equity or long-term debt. Unfortunately, the current regulatory capital framework measures capital at book value, which can mask the actual solvency of a financial institution, as bank capital serves more as a balance-sheet entry than a source of funding.</span></p> <p class="p1"><span class="s1">None of this is to say that Hensarling's efforts represent a "silver bullet." If there's one consensus about the U.S. federal financial regulatory regime, it is that it was imperfect both pre- and post-Dodd-Frank. Policymakers will always face challenges trying to prevent "the next crisis" armed only with the knowledge of what "the last crisis" looked like.</span></p> <p class="p1"><span class="s1">It's entirely possible, for instance, that many large, entrenched financial institutions that have already invested significant resources into Dodd-Frank compliance will simply opt to stay within a more familiar regulatory environment.&nbsp;</span></p> <p class="p1"><span class="s1">But it's nevertheless promising that years of scholarship on bank capital appear to be reaching ready,&nbsp;<a href="https://www.brown.senate.gov/newsroom/press/release/sens-brown-vitter-and-levin-urge-regulators-to-increase-capital-requirements-preventing-future-bailouts-for-largest-institutions"><span class="s2">bipartisan audiences</span></a>. Higher capital requirements have the potential to move the burden of financing risky banking activities from taxpayers to bank shareholders. Simpler capital requirements help balance the playing field between large firms that can game a complex system and small firms that can compete on customer service but not on regulatory expertise.</span></p> http://mercatus.org/expert_commentary/hensarling-bill-gives-credence-capital-king Wed, 29 Jun 2016 11:09:52 -0400 Adam Millsap Discusses Pennsylvania's Fiscal Ranking on PMA Perspective http://mercatus.org/video/adam-millsap-discusses-pennsylvanias-fiscal-ranking-pma-perspective <h5> Video </h5> <iframe src="https://player.vimeo.com/video/172133462" width="640" height="360" frameborder="0" webkitallowfullscreen mozallowfullscreen allowfullscreen></iframe> <p><a href="https://vimeo.com/172133462">FY 2016-17 Budget Preview</a> from <a href="https://vimeo.com/pmaperspective">PMA Perspective</a> on <a href="https://vimeo.com">Vimeo</a>.</p> <p class="p1"><span class="s1">This week on PMA Perspective, just days before the fiscal deadline of June 30, Adam Millsap examines Pennsylvania’s current budget negotiations and forecast where the debate is headed. PMA’s Carl Marrara hosts an interview with Adam Millsap, a research fellow with the Mercatus Center at George Mason University to review their most recent study, “Ranking the States by Fiscal Condition,” in which Pennsylvania ranks 39th. In the studio, David N. Taylor hosts a newsmaker interview with PA State Representative Seth Grove (R-196), a sitting member on the House Appropriations Committee and Chair of the House Taxpayer Caucus. The show concludes with “Final Word” commentary from PMA’s Chairman of the Board, Mr. Fred Anton.</span></p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe src=&quot;https://player.vimeo.com/video/172133462&quot; width=&quot;640&quot; height=&quot;360&quot; frameborder=&quot;0&quot; webkitallowfullscreen mozallowfullscreen allowfullscreen&gt;&lt;/iframe&gt; &lt;p&gt;&lt;a href=&quot;https://vimeo.com/172133462&quot;&gt;FY 2016-17 Budget Preview&lt;/a&gt; from &lt;a href=&quot;https://vimeo.com/pmaperspective&quot;&gt;PMA Perspective&lt;/a&gt; on &lt;a href=&quot;https://vimeo.com&quot;&gt;Vimeo&lt;/a&gt;.&lt;/p&gt; </div> </div> </div> http://mercatus.org/video/adam-millsap-discusses-pennsylvanias-fiscal-ranking-pma-perspective Wed, 29 Jun 2016 10:53:59 -0400 Another Year Brings Similar Warning From Medicare Trustees About Program's Finances http://mercatus.org/expert_commentary/another-year-brings-similar-warning-medicare-trustees-about-programs-finances <h5> Expert Commentary </h5> <p class="p1"><span class="s1">In 2015, Medicare financed health care services for&nbsp;an estimated 55 million people at a total cost of nearly $650 billion. Last week, Medicare’s trustees—Treasury Secretary Jack Lew, Health and Human Services Secretary Sylvia Burwell, Labor Secretary Thomas Perez, and Acting Social Security Commissioner Carolyn Colvin—submitted the annual <a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2016.pdf"><span class="s2">report</span></a> of the program’s finances. Although the program’s finances have slightly deteriorated, not much has changed from last year’s report.</span></p> <p class="p1"><span class="s1">The insolvency date of the Hospital Insurance (HI)/Part A trust fund was moved up two years to 2028; according to the report, “[a]s in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years.” But the payroll tax financed HI trust fund is just one part of Medicare, and Medicare’s other parts continue to claim increasing amounts of general tax revenue. Once again, the trustees have sounded an alarm that policymakers should enact legislation to deal with Medicare’s “substantial financial shortfall…sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”</span></p> <p class="p1"><span class="s1"><b>Medicare’s Upward Trajectory</b></span></p> <p class="p1"><span class="s1">As baby boomers turn 65 en masse, the trustees project that Medicare spending as a percentage of the economy will significantly increase over the next decade. The trustees estimate Medicare’s spending path under two scenarios—current law and an illustrative alternative scenario. The trustees’ illustrative scenario projects the hypothetical results of Congress overriding Medicare cost constraints in current law that many believe could threaten provider payments and enrollee benefits.</span></p> <p class="p1"><span class="s1">In 2015, Medicare expenditures equaled 3.6% of GDP. Under current law, the trustees project Medicare spending to grow to 5.6% of GDP in 2040 and 6.0% of GDP in 2090. Under the illustrative scenario, Medicare spending is expected to grow to 6.2% of GDP in 2040 and 9.1% of GDP in 2090. The trustees warn that action is needed under any scenario, however. According to the report, “[g]rowth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.”</span></p> <p class="p1"><img height="460" width="575" alt="Figure I.1--Medicare Expenditures as a Percentage of the Gross Domestic Product under Current Law and Illustrative Alternative Projections" src="http://mercatus.org/sites/default/files/blaseforbesmedicare.jpg" /></p> <p class="p1"><span class="s1"><b>Medicare Increasingly Relies on General Tax Revenue</b></span></p> <p class="p1"><span class="s1">The following table compares the sources of Medicare’s financing in 2005 and 2015. It shows that general revenue now provides 42.4% Medicare’s income, up from 33.2% in 2005. Most of the general revenue finances Medicare Part B (physician and outpatient services) and Part D (prescription drugs), a relatively new Medicare benefit started in 2006, although general revenue is also now needed to finance Part A’s deficit. Using their current law assumptions, the trustees project that by 2030, general revenue will provide nearly half of Medicare’s total income and payroll tax revenue will provide less than 30%.</span></p> <p class="p1"><img height="172" width="575" alt="Changes in Medicare Financing Over 10 Years" src="http://mercatus.org/sites/default/files/blaseforbesmedicare2.jpg" /></p> <p class="p1"><span class="s1">At the end of 2007, the Part A trust fund contained $326 billion. After 8 consecutive years of deficits, the amount left in the trust fund has been reduced to $194 billion at the end of 2015. The trustees project that the trust fund will be depleted in 2028, two years earlier than the depletion date projected in last year’s report. Because Part A finances are approaching insolvency, the estimated trust fund depletion date can vary by several years depending on relatively small changes in both the underlying economic data and assumptions about various growth rates. In this year’s report, a slightly lower assumption for both near-term inflation and inflation-adjusted wage growth lowered projected payroll tax revenues and thus the projected near-term HI trust fund balance.</span></p> <p class="p1"><span class="s1">Importantly, while many consider the trust fund an accounting gimmick since Washington long ago spent payroll tax surpluses, it has legal importance. Without a positive balance in the Part A trust fund, Medicare’s administrators lack the authority to finance full benefits as outgoing payments can be financed only at the levels of incoming receipts. Such a scenario would likely result in significant payment reductions to health care providers.</span></p> <p class="p1"><span class="s1"><b>Current Law Medicare Projections Likely Too Rosy</b></span></p> <p class="p1"><span class="s1">In their report, the trustees make clear their current law assumptions are based on a relatively optimistic set of assumptions. According to the trustees, “[t]he methodology for projecting Medicare finances assumes a substantial long-term reduction in per capita health expenditure growth rates relative to historical experience, to which the cost reduction provisions of the [Affordable Care Act] and MACRA would add substantial further savings.”</span></p> <p class="p1"><span class="s1">The trustees discuss the reasons that this assumption is uncertain. For example, physician bonuses and payments in MACRA expire in 2025, “resulting in a significant one-time payment reduction for most physicians.” The trustees believe that physician payment rates will continue to be a significant issue, particularly in the long term under current law.</span></p> <p class="p1"><span class="s1">According to the trustees, health care productivity adjustments in the ACA are the most important cost-reduction component underlying their current law projections. According to trustees, these adjustments, which increase Medicare rates largely as a function of economy-wide productivity improvements rather than on the rising costs of medical goods and services, “will occur as the ACA requires.” Mainly as a result of these adjustments, the trustees project that hospital prices will grow at just under inflation and physician and outpatient service prices will grow annually at about 1% less than inflation over the next decade. Large long-term savings are projected as these productivity adjustments are assumed to compound annually.</span></p> <p class="p1"><span class="s1">In Mercatus <a href="http://mercatus.org/publication/indexing-affordable-care-act-impact-federal-budget"><span class="s2">research</span></a>, health care experts James Capretta and Joe Antos raise the concern that the lower adjustment factor, compounded year-after-year, will lead to such low provider payment rates that many doctors will stop treating Medicare beneficiaries. In fact, the Office of the Actuary at the Centers for Medicare and Medicaid Services (CMS) <a href="https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2015TRAlternativeScenario.pdf"><span class="s2">projects</span></a> that by 2040, half of all hospitals, 70% of skilled nursing facilities, and 90% of home health agencies will be losing money each year. These projections also show that Medicare payments will only be 40% of what private insurers pay in 75 years.</span></p> <p class="p1"><span class="s1">The repeated short-term doc fixes, followed by MACRA, indicate that Congress often caves to pressure from providers to increase payment rates subject to formulaic cuts, like those contained in the ACA. Rather than continuing the exercise of tightening and loosening Medicare’s price controls, policymakers should consider adopting policies that allow market forces to improve the quality of the services delivered to Medicare recipients and to lower prices over time.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Yet again the Medicare trustees have made clear that Medicare’s financing path is unsustainable and have called on policymakers to act. This is true even under the assumption that the ACA’s cost control measures remain in place by future policymakers. Putting Medicare on a sustainable trajectory will involve tradeoffs, but the earlier policymakers act the better the likely outcome for taxpayers, workers, beneficiaries, and providers.</span></p> http://mercatus.org/expert_commentary/another-year-brings-similar-warning-medicare-trustees-about-programs-finances Wed, 29 Jun 2016 10:26:55 -0400 Community Revival in the Wake of Disaster Book Panel http://mercatus.org/events/community-revival-wake-disaster-book-panel contact@mercatus.org (Mercatus.org) <h5> Events </h5> <p>Rebounding after disasters like tsunamis, hurricanes, earthquakes, and floods can be daunting. How do residents of these communities gain access to the resources they need to rebuild while overcoming the collective action problem that characterizes post-disaster relief efforts?</p> <p>Please join the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University for a panel discussion featuring Hayek Program Senior Fellow Virgil Storr and his new book <a href="http://www.communityrevival.us/book"><i>Community Revival in the Wake of Disaster: Lessons in Local Entrepreneurship</i>.</a></p> <p>In this book, Storr and his co-authors Stefanie Haeffele-Balch and Laura Grube argue that entrepreneurs, conceived broadly as individuals who recognize and act on opportunities to promote social change, fill the critical role of helping communities overcome the obstacles to rebound after disaster. Using examples of recovery efforts following Hurricane Katrina in New Orleans, Louisiana, and Hurricane Sandy in Rockaway, New York, the authors demonstrate how entrepreneurs promote community recovery by providing necessary goods and services, restoring and replacing disrupted social networks, and signaling that community rebound is likely and, in fact, underway. They argue that creating space for entrepreneurs to act after disasters is essential for promoting recovery and fostering resilient communities.</p> <p>We will be pleased to hear from author&nbsp;<b><a href="http://www.mercatus.org/virgil-storr">Virgil Storr</a>,</b>&nbsp;as well as panel chair <b><a href="http://www.mercatus.org/peter-boettke">Peter Boettke</a></b>&nbsp;and commenters&nbsp;<b><a href="http://www.northeastern.edu/cssh/faculty/daniel-aldrich">Daniel Aldrich</a></b>, <b><a href="http://sociology.colostate.edu/people/loripeek/">Lori Peek</a></b>, and<b> <a href="http://www.mercatus.org/emily-chamlee-wright">Emily Chamlee-Wright</a></b>.</p> <p>For any further questions, please contact Ashley Adams at <a href="mailto:aadams@mercatus.gmu.edu">aadams@mercatus.gmu.edu</a> or (703) 993-8977.</p> <p><a href="http://www.mercatus.org/virgil-storr"><b>Virgil Storr</b>,</a> Senior Research Fellow, Senior Director, Academic and Student Programs and Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics, Mercatus Center at George Mason University.</p> <p class="p1"><span class="s1"><b><a href="http://www.mercatus.org/peter-boettke">Peter Boettke</a></b>, Vice President and Director, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, Mercatus Center at George Mason University.</span></p><p><b><a href="http://www.northeastern.edu/cssh/faculty/daniel-aldrich">Daniel Aldrich</a></b>, Professor of Political Science and Co-Director of the <a href="http://www.northeastern.edu/resilience/">Security and Resilience Studies Program </a>at <a href="http://www.northeastern.edu/">Northeastern University</a>.</p><p class="p1"><span class="s1"><b><a href="http://sociology.colostate.edu/people/loripeek/">Lori Peek</a></b>, Associate Professor in the <a href="http://sociology.colostate.edu/%22%20%5Ct%20%22_blank"><span class="s2">Department of Sociology</span></a> and Co-Director of the <a href="http://wsnet.colostate.edu/CWIS584/Lori_Peek/disaster.colostate.edu%22%20%5Ct%20%22_blank"><span class="s2">Center for Disaster and Risk Analysis</span></a> (CDRA) at&nbsp;<span class="s2"><a href="http://www.colostate.edu/%22%20%5Ct%20%22_blank">Colorado State University</a>.</span></span></p> <p class="p2"><b><a href="http://www.mercatus.org/emily-chamlee-wright">Emily Chamlee-Wright</a></b>, Provost and Dean at Washington College in Chestertown, Maryland. Dr. Chamlee-Wright is the lead researcher for Phase I of the Mercatus Center&nbsp;<a href="http://mercatus.org/gulf-coast-recovery-project%22%20%5Co%20%22Gulf%20Coast%20Recovery%20Project">Gulf Coast Recovery Project</a><span class="s2">&nbsp;</span>and the socio-cultural category of research.</p> http://mercatus.org/events/community-revival-wake-disaster-book-panel Wed, 29 Jun 2016 16:51:18 -0400 Can Urbit Reboot Computing? http://mercatus.org/expert_commentary/can-urbit-reboot-computing <h5> Expert Commentary </h5> <p class="p1"><span class="s1">It's a common complaint that <a href="https://blog.archive.org/2015/02/11/locking-the-web-open-a-call-for-a-distributed-web/"><span class="s2">"computing" is broken</span></a>. Whether the concern is government <a href="http://www.popsci.com/edward-snowden-internet-is-broken"><span class="s2">surveillance</span></a>, invasive <a href="https://www.washingtonpost.com/news/the-switch/wp/2015/10/15/amid-the-adblockalypse-advertisers-apologize-for-messing-up-the-web/"><span class="s2">advertising and malware</span></a>, <a href="https://motherboard.vice.com/read/pirate-bay-founder-peter-sunde-i-have-given-up"><span class="s2">censorship by private and&nbsp;public bodies</span></a>, or the general&nbsp;<a href="https://www.gnu.org/philosophy/keep-control-of-your-computing.en.html"><span class="s2">gulf between user control and control of users</span></a>, many worry&nbsp;that our amazing network of networks has been <a href="https://medium.com/message/everything-is-broken-81e5f33a24e1#.qoa6pwcs0"><span class="s2">slowly atrophying</span></a> for some time. But a project called&nbsp;<a href="http://urbit.org/"><span class="s2">Urbit</span></a>&nbsp;aims to overcome this—by getting humans to start&nbsp;<a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">thinking more like Martians</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">Why is a reboot necessary? The incentives and arrangements developed during the early days of the internet haven't exactly scaled well. Much of our digital infrastructure forces us to rely faceless third parties—Internet Service Providers, software developers, cloud servers, platform administrators, domain-name registrars—in order to connect with others. No one person can presently provide all or most of these functions for themselves. Instead,&nbsp;we each must trust this conglomeration of faraway bureaucracies—in addition to the&nbsp;<a href="http://thewebindex.org/wp-content/uploads/2014/12/Web_Index_24pp_November2014.pdf"><span class="s2">often-rascally governments</span></a> that oversee the whole operation.</span></p> <p class="p1"><span class="s1">As a result, our&nbsp;computing experiences will only be as good as this federation of virtual landlords is virtuous. Alas: <a href="http://www.pewinternet.org/files/2014/10/PI_OnlineHarassment_102214_pdf1.pdf"><span class="s2">virtue is not exactly "in" online</span></a>.</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s1">Some&nbsp;developers are <a href="http://brewster.kahle.org/2015/08/11/locking-the-web-open-a-call-for-a-distributed-web-2/"><span class="s2">seeking to transcend our internet feudalism</span></a> by <a href="http://nakamotoinstitute.org/trusted-third-parties/"><span class="s2">minimizing the number of third parties</span></a> one must patronize to participate in digital society. Open-source operating systems like <a href="https://en.wikipedia.org/wiki/Linux"><span class="s2">Linux</span></a> allow people to take more control over their own computers. <a href="http://mercatus.org/publication/bitcoin-primer-policymakers"><span class="s2">Bitcoin</span></a> substitutes trust in a single payment processor for trust in a cryptographically secure, peer-to-peer network.&nbsp;<a href="https://en.wikipedia.org/wiki/BitTorrent"><span class="s2">BitTorrent</span></a>, similarly, allows individuals to share files using a distributed network that cannot be immediately shut down by targeting any one&nbsp;entity. And several new <a href="http://redecentralize.org/interviews/"><span class="s2">projects</span></a> aim to <a href="http://www.economist.com/news/business/21700642-slew-startups-trying-decentralise-online-world-reweaving-web?fsrc=scn%2Ftw%2Fte%2Fpe%2Fed%2Freweavingtheweb"><span class="s2">extend this logic to personal computing</span></a>&nbsp;more generally.&nbsp;There's&nbsp;<a href="https://openbazaar.org/"><span class="s2">OpenBazaar</span></a>, a distributed marketplace platform that wants to be the "<a href="http://www.coindesk.com/openbazaar-live-version-bitcoin-market/"><span class="s2">Bitcoin of Amazon</span></a>"—a censorship-resistant e-commerce protocol that empowers buyers and sellers to transact peacefully without a middleman. There's the InterPlanetary File System, or IPFS, which would operate as a kind of <a href="https://en.wikipedia.org/wiki/InterPlanetary_File_System"><span class="s2">BitTorrent for the World Wide Web</span></a>.</span></p> <p class="p1"><span class="s1">But there is only one project that aims&nbsp;to just start this whole networking thing completely from scratch. It's an "operating function"&nbsp;called <a href="http://urbit.org/"><span class="s2">Urbit</span></a>, and it is by far the most fascinating and bizarre of these attempts&nbsp;to reboot computing.</span></p> <p class="p1"><span class="s1"><b>Inside the Urbit&nbsp;Universe</b></span></p> <p class="p1"><span class="s1">Urbit is brought to you by a man named Curtis Yarvin and a&nbsp;company named <a href="http://tlon.io/"><span class="s2">Tlon</span></a>.&nbsp;Much of the commentary about Urbit has&nbsp;focused on&nbsp;the unorthodox political opinions of Yarvin, who is better known in some circles by his nom de plume, Mencius Moldbug. As Moldbug,&nbsp;Yarvin has penned fiery condemnations of democracy, extolled the&nbsp;virtues of&nbsp;historic monarchies,&nbsp;and found himself as a philosophical&nbsp;leader&nbsp;for&nbsp;the budding "neoreactionary" movement. But Urbit is perhaps even more intriguing than its radical creator.&nbsp;</span></p> <p class="p1"><span class="s1">Urbit is a software stack comprised of roughly five major parts: an operating system (Arvo), two kinds of programming languages that interact together (Nock and Hoon), a network (Ames), and you, the dear user. Combined, this system seeks to distill computing into its lightest and purest possible form, leaving the user in control of more processes than previously afforded.</span></p> <blockquote><p class="p1"><span class="s1"><i>Arvo:</i> Microsoft has Windows, Apple has Mac OS, and Urbit has Arvo. This is the "<a href="https://en.wikipedia.org/wiki/Kernel_(operating_system)"><span class="s2">kernel</span></a>" upon which the entire system runs. Arvo starts with a self-compiling command and a&nbsp;basic input/output system. It is quite small, written in roughly 600 lines of the native programming language, Hoon. For frame of reference, Windows 7 is written in about <a href="http://www.informationisbeautiful.net/visualizations/million-lines-of-code/"><span class="s2">40 million lines of code</span></a>. Arvo is small because it is intended to "grow" with a&nbsp;user's event history.</span></p><p class="p1"><span class="s1"><i>Nock and Hoon:</i> This is the DNA of Urbit, and in true Urbit fashion, it is radically different from the object-oriented programming languages most familiar to laypeople. For the techies out there, Nock is a virtual machine and high-level language that compiles Hoon and is a little bit like <a href="https://en.wikipedia.org/wiki/Lisp_(programming_language)"><span class="s2">Lisp</span></a>. Hoon is a functional programming language that is a little bit like <a href="https://en.wikipedia.org/wiki/Haskell_(programming_language)"><span class="s2">Haskell</span></a>. They're quite odd, but totally groovy if you're into the challenge of learning abstract code. For the non-techies out there, all you need to know is that Nock and Hoon comprise the language of Urbit.</span></p><p class="p1"><span class="s1"><i>Ames:</i> This is the "Urbit network," an encrypted peer-to-peer&nbsp;protocol and namespace. It is here that an&nbsp;Urbit user shapes her identity and interacts with the vast universe of this cyberspace. Unlike in the current system, where you have many digital identities—your IP address and various screennames that may or may not connect to your "real" self—your address <i>is</i> your identity in Ames.&nbsp;</span></p><p class="p1"><span class="s1"><i>Starstuff (you):</i> And what are "you" in Urbit? You are a plot. A plot is a 128-bit number that serves as your identity and your address. There are many kinds of plots in Urbit, of different sizes and importance, yet all celestial. The hierarchy is as follows: There are the 8-bit "galaxies" of one syllable;&nbsp;two-syllabled, 16-bit "stars"; the 32-bit, 4-syllable "planets"; 64-bit and 8-syllable "moons"; and finally the 128-bit, 16-syllable "comets." All of these plots map to services and functions that already exist in the current system.</span></p></blockquote> <p class="p1"><span class="s1">As the Urbit&nbsp;<a href="http://media.urbit.org/whitepaper.pdf"><span class="s2">white paper explains</span></a>, galaxies and stars comprise the network infrastructure, planets are like personal servers, moons are like clients, and comets are like cheap little bots. Control tiers up the hierarchy: Galaxies can issue stars, stars can issue planets, planets can issue moons, and moons can issue bots. A detailed analysis of the law and context guiding these identities in Urbit deserves a separate article, but this is the universe of Urbit in a nutshell.</span></p> <p class="p1"><span class="s1">Urbit has been <a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">in the works for at least six years</span></a>, and despite the <a href="http://alexkrupp.typepad.com/sensemaking/2013/12/a-brief-introduction-to-urbit.html"><span class="s2">mystery and strangeness</span></a> pervading the previously available documentation, <a href="http://urbit.org/docs/"><span class="s2">it does indeed actually exist</span></a> as a testnet and can be <a href="https://github.com/urbit/urbit"><span class="s2">downloaded</span></a> and <a href="http://urbit.org/docs/using/setup/"><span class="s2">run by any interested parties</span></a>. Or, if you'd rather merely dip your toes into this unparalleled experiment in Martian programming, you can jump into the <a href="http://urbit.org/stream/"><span class="s2">chat</span></a> to politely pick the brains of the star-men&nbsp;of Urbit.</span></p> <p class="p1"><span class="s1"><b>Declaration of Digital Independence&nbsp;</b></span></p> <p class="p1"><span class="s1">By now, this is probably all sounding pretty zany. The Tlon developers will <a href="https://moronlab.blogspot.com/2010/01/urbit-functional-programming-from.html"><span class="s2">proudly tell you that it is</span></a>. But when you parse through the underlying values that guide the system, a rather libertarian ethos begins to emerge. Consider Tlon's&nbsp;<a href="http://urbit.org/posts/principles/"><span class="s2">statement of principles</span></a>:&nbsp;</span></p><blockquote><p class="p1"><span class="s1">We believe that general-purpose computing is an essential tool to unlock the power of individual creativity.</span></p><p class="p1"><span class="s1">We believe that ownership, privacy and control don't need to be sacrificed in exchange for usability, accessibility and reliability.</span></p><p class="p1"><span class="s1">We believe in the power of the informed crowd to develop and maintain software, through the IETF principles of sincerity and rough consensus. The ability of the engineering community to govern itself through republican forms is not an abstract theory; it's a proven fact.</span></p><p class="p1"><span class="s1">We believe in both free speech and individual accountability. We believe that a healthy network is one with diverse and well-defined communities, and clear, user-controlled, boundaries between public and private space.</span></p><p class="p1"><span class="s1">We believe that no software system can replace human trust and communication. Dialogue, judgment and governance are essential to communities of all scales. Code and law can reduce conflict in the common case; they can never handle all exceptions.</span></p></blockquote> <p class="p1"><span class="s1">If the Founding Fathers were computer programmers <a href="https://medium.com/@urbit/design-of-a-digital-republic-f2b6b3109902#.1g8fp88c3"><span class="s2">designing a new digital republic</span></a>, their Declaration of Independence might look a bit like the Urbit manifesto.&nbsp;</span></p> <p class="p1"><span class="s1">As a republic, the "government" of Urbit has one task: "promoting, preserving and protecting Urbit." But in doing so, Yarvin and fellow developer Galen Wolfe-Pauly point out, Urbit should "never fall under any kind of central control."</span></p> <p class="p1"><span class="s1">Much of the&nbsp;language in Urbit's statement of principles reads as if it could have been written by Murray Rothbard himself (indeed, Yarvin frequently cites such luminaries of liberty as <a href="https://unqualified-reservations.blogspot.com/2010/02/from-mises-to-carlyle-my-sick-journey.html"><span class="s2">Ludwig von Mises</span></a> and <a href="https://medium.com/@urbit/design-of-a-digital-republic-f2b6b3109902#.1g8fp88c3"><span class="s2">John Perry Barlow</span></a> as his personal intellectual influences). But "liberty" is not a homogeneous concept. It's important to note that Urbit approaches the problem of "centralized computing" from a radically different position than many of the other projects described above, such as&nbsp;Bitcoin.&nbsp;</span></p> <p class="p1"><span class="s1">As the <a href="http://media.urbit.org/whitepaper.pdf"><span class="s2">Urbit white paper</span></a> explains, "Bitcoin is a trust-free system; Urbit has a central trust hierarchy"—the nested system of galaxies and heavenly bodies outlined above.&nbsp;However, the initial hierarchy baked into the Urbit platform—namely, the preliminary "crowdsale" of galaxies—may raise eyebrows among "<a href="http://altcoins.com/scamcoins"><span class="s2">scamcoin</span></a>"-watchdogs in the cryptocurrency community.</span></p> <p class="p3"><span class="s1">&nbsp;</span></p> http://mercatus.org/expert_commentary/can-urbit-reboot-computing Tue, 28 Jun 2016 11:37:05 -0400 New York Politicians Should Stay out of the Private Sector's Way http://mercatus.org/expert_commentary/new-york-politicians-should-stay-out-private-sectors-way <h5> Expert Commentary </h5> <p class="p1"><span class="s1">New York state politicians think they can and should pick winners and losers in the private sector. But their record is clear: They’re really good at picking losers.</span></p> <p class="p1"><span class="s1">Before the legislative session ended, lawmakers had the opportunity to open up the state to thriving businesses, but they didn’t. They decided to continue picking which industries and businesses succeed or fail. When Albany tries to select winners, New Yorkers always lose.</span></p> <p class="p1"><span class="s1">First, state lawmakers wrapped up the 2016 legislative session without resolving how ridesharing companies like Uber and Lyft can expand outside of New York City, missing their chance to bring in much-needed jobs and better services.</span></p> <p class="p1"><span class="s1">This alone would be a cause for concern, since it denies New Yorkers one of the sharing economy’s most successful industries. But, Albany wasn’t finished. The Legislature also passed a bill preventing Airbnb users from advertising entire apartments for rent for less than 30 days.</span></p> <p class="p1"><span class="s1">On its face, it may look like the Legislature is trying to chase business out of the Empire State. But this isn’t an anti-business crusade. Airbnb, Uber and Lyft are just part of the wrong industry.</span></p> <p class="p1"><span class="s1">While lawmakers were busy building roadblocks for the sharing economy, they were also giving hundreds of millions of taxpayer dollars to other ventures. New York is willing to hand out $50 million a year in tax subsidies for music and video-game producers and $420 million for TV and film production.</span></p> <p class="p1"><span class="s1">Picking winners and losers is certainly bad governance. New York is also extremely bad at it.</span></p> <p class="p1"><span class="s1">Businesses that receive Albany’s financial support have a tendency to flop. The state has spent hundreds of millions to support General Electric, a notoriously flighty company that tends to chase tax privileges. GE’s Durathon battery plant in Schenectady, a recipient of 2013’s “JOBS Now” capital funding, closed down in 2015. Albany doubled down, committing another $50 million to convince GE to put another factory in Utica. Not exactly a shining record of success.</span></p> <p class="p1"><span class="s1">Economic growth, we’re told, will follow these investments. But private-sector employment in the state grew at barely half the average US rate during the last year. And what’s more, most of this job growth was limited to New York City and its suburbs.</span></p> <p class="p1"><span class="s1">Bringing jobs and opportunity upstate is not as difficult as Albany makes it look, but ongoing efforts to stifle the sharing economy show that lawmakers are more interested in playing politics than setting sound policy.</span></p> <p class="p1"><span class="s1">Expanding ridesharing across New York would provide new job opportunities, as it has done nearly nationwide.</span></p> <p class="p1"><span class="s1">Taxi drivers in Rochester and Albany have protested bringing ridesharing to areas outside New York City, claiming passengers are less safe riding with Uber and Lyft, and that they cannot adequately provide for disabled passengers.</span></p> <p class="p1"><span class="s1">Albany seems to be receptive to these arguments. Yet it’s becoming increasingly clear it shouldn’t be.</span></p> <p class="p1"><span class="s1">In addition to providing passengers with safety features unavailable in taxis — pictures of drivers, maps of the trip, ETAs, driver ratings, vehicle descriptions and license-plate numbers — recent research shows that competition from Uber makes taxis better. Using data from the New York City Taxi and Limousine Commission, Georgetown’s Scott Wallsten notes that the rate of consumer complaints about taxis decreases as ridesharing becomes more common.</span></p> <p class="p1"><span class="s1">The best thing for upstate taxi passengers may be Uber’s expansion outside of New York City. Reforms must embrace the changes that are already taking place and allow cab companies to improve, rather than entrench their outdated business practices.</span></p> <p class="p1"><span class="s1">All New Yorkers — not just city dwellers — deserve the opportunity to choose the type of services they pay for, whether it’s who picks them up, where they stay or where they work. And New Yorkers deserve the economic boost that the sharing economy provides.</span></p> <p class="p1"><span class="s1">Unfortunately, lawmakers appear to have missed their chance, and they will have to wait until next year. It’s time Albany realized picking winners and losers is easier than they’ve made it. They don’t have to pick at all. They just have to get out of the way.</span></p> http://mercatus.org/expert_commentary/new-york-politicians-should-stay-out-private-sectors-way Tue, 28 Jun 2016 11:19:34 -0400 ACA Enrollees Twice As Expensive As Other Individual Market Enrollees http://mercatus.org/expert_commentary/aca-enrollees-twice-expensive-other-individual-market-enrollees <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Rather than stabilizing in 2016 as many experts predicted, the Affordable Care Act (ACA) is <a href="http://mercatus.org/publication/downgrading-affordable-care-act-aca-unattractive-health-insurance-and-lower-enrollment"><span class="s2">leading</span></a> to large premium hikes and less choice and competition in the individual insurance market as plans prove unattractive to relatively young, healthy, and middle-class people. In order to achieve a better understanding of the ACA’s impact, a new Mercatus Center working <a href="http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future"><span class="s2">paper</span></a>&nbsp;compared insurers’ performance selling individual Qualified Health Plans (QHPs) with three other markets: the individual non-QHP market, the small group QHP market and the small group non-QHP market.</span></p> <p class="p1"><span class="s1">My co-authors, Doug Badger of the Galen Institute, Ed Haislmaier of the Heritage Foundation, Seth Chandler of the University of Houston&nbsp;and I make two key empirical findings. First, individual market QHP enrollees had average medical claims nearly double the average claims for individual non-QHP market enrollees in 2014. Second, individual market QHP enrollees were about 25% more expensive than enrollees in small group QHPs.</span></p> <p class="p1"><span class="s1">In both the individual and small group markets, QHPs—plans that satisfy the multitude of ACA requirements and are certified to be sold on exchanges—are essentially the same and are governed by nearly identical regulations. Comparing the performance of insurers in the individual QHP market with their performance in&nbsp;these other&nbsp;markets provides information about the ACA and its impact.</span></p> <p class="p1"><span class="s1">Our findings show that the individual QHP market exhibited significant adverse selection (a disproportionately high percentage of less healthy enrollees in the insurance risk pool) in 2014—despite premiums that were artificially lower because of a large back-end subsidy program geared toward this market. The findings suggest that the small group market, which contains features that limit adverse selection, initially weathered the ACA’s torrent of regulations and price controls while the individual market did not. Since insurers’ losses selling individual market QHPs more <a href="http://www.forbes.com/sites/theapothecary/2016/05/11/new-report-suggests-massive-insurer-losses-in-2015-on-obamacare-as-health-care-spending-explodes/#3e225f2a4a63"><span class="s2">than doubled</span></a> from 2014 to 2015, adverse selection appears to be worsening as implementation moves forward.</span></p> <p class="p1"><span class="s1"><b>ACA Plans Spending Significantly More than Non-ACA Plans</b></span></p> <p class="p1"><span class="s1">The following table shows per enrollee premium income, per enrollee medical claims, the loss ratio (medical claims divided by premium income) and enrollment (average monthly number of enrollees) in 2014 for the four markets described above. The data is from the 174 insurers that offered QHPs in both the individual and small group market in 2014. Small group market enrollees generally consist of workers at firms with no more than 50 workers and their covered dependents.</span></p> <p class="p1"><img src="http://mercatus.org/sites/default/files/ACAblase1.jpg" alt="Insurers' Performance across Different Markets in 2014" width="575" height="229" /></p> <p class="p1"><span class="s1">In the individual market, non-QHPs consist of grandfathered plans (plans in existence before the ACA became law that were allowed to continue), grandmothered plans (plans that came into existence after the ACA became law that the administration allowed to continue for several years after the <a href="http://www.cnn.com/2013/11/07/politics/obama-obamacare-apology/"><span class="s2">uproar</span></a> caused by 5 million people receiving cancellation notices), and ACA-compliant non-QHPs.</span></p> <p class="p1"><span class="s1">Individual market QHP enrollees incurred nearly $5,000 in average medical claims in 2014—93% more than the roughly $2,600 in average medical claims incurred by people enrolled in individual market non-QHPs. The substantial medical claims paid by individual market QHPs resulted in large losses despite insurers taking in premium income, largely consisting of government subsidy payments, of about $1,400 more per enrollee for their individual market QHPs than for their individual non-QHPs. The 110% loss ratio for individual market QHPs does not account for administrative expenses, which generally amount to about 15% to 20% of premiums.</span></p> <p class="p1"><span class="s1"><b>Individual ACA Market Experiencing Adverse Selection</b></span></p> <p class="p1"><span class="s1">In 2014, individual market QHPs benefitted from a government reinsurance program that paid insurers 100% of the cost of claims for enrollees incurring bills between $45,000 and $250,000. Insurers received $7 billion in reinsurance payments in 2014, but the program is scheduled to end after 2016. In a previous <a href="http://mercatus.org/publication/affordable-care-act-2014-significant-insurer-losses-despite-substantial-subsidies"><span class="s2">paper</span></a>, my co-authors and I estimated that insurers would have had to raise premiums 26%, on average, to meet their expenses in 2014 without the reinsurance program and assuming no additional selection effects from the higher premiums.</span></p> <p class="p1"><span class="s1">Even though premiums were depressed in 2014 because of the reinsurance program, individual QHPs still did not attract a sufficient number of younger and healthier enrollees to create a stable risk pool. Based on <a href="https://oversight.house.gov/wp-content/uploads/2014/07/WH-Involvement-in-ObamaCare-Taxpayer-Bailout-with-Appendix.pdf"><span class="s2">data</span></a> released from the House Committee on Oversight and Government Reform, insurers’ 2014 and 2015 individual QHP risk pools skewed much older than expected. In fact, about 50% more people over the age of 55 enrolled, as a share of the risk pool, than insurers expected.</span></p> <p class="p1"><span class="s1">People near retirement spend about five times more on healthcare, on average, than young adults, but the ACA prevented insurers from charging the oldest members of the risk pool more than three times the amount they charged young adults. The higher percentage of older people in the risk pool increased both average premium income and average claims. Since the ACA results in insurers losing money, on average, on older enrollees, an older risk pool than expected partially explains why insurers suffered significant losses on individual market QHPs despite receiving average premium income that was nearly $1,400 greater than average premium income for their individual market non-QHPs.</span></p> <p class="p1"><span class="s1">Since insurers did reasonably well selling small group QHPs in 2014, features of the employer-based insurance system seem important for the ACA’s insurance market changes to function without generating severe adverse selection. In general, risk pools for employment-based coverage are less prone to selection effects, as employment decisions by both firms and workers are typically made based on factors other than a worker’s health status. Moreover, the criteria for special enrollment—which has been <a href="http://www.politico.com/story/2016/01/gaming-obamacare-insurance-health-care-217598"><span class="s2">abused</span></a> by people in the individual QHP market who anticipate significant medical claims—are clearer and more easily verified in an employer group plan.</span></p> <p class="p1"><span class="s1"><b>Conclusion</b></span></p> <p class="p1"><span class="s1">Insurers’ loss ratio in the individual QHP market was about a third higher than the loss ratio in each of the other three markets. The higher loss ratio was driven by much higher average medical claims for the individual QHP market, and indicates that insurers did not enroll enough younger and healthier consumers to create a balanced risk pool in 2014. Comparing results across markets suggests that the ACA’s rules and price controls may be incompatible with a well-functioning individual market.</span></p> <p class="p1"><span class="s1">Large premium increases both in 2016 and 2017 will further reduce&nbsp;the attractiveness of individual market QHPs to younger and healthier enrollees, particularly individuals who do not qualify for large subsidies. Without significant revision to the ACA that makes insurance more attractive to younger and healthier people and that significantly reduces the incentive for people to wait until they are sick to purchase coverage, the individual market looks increasingly likely to morph into a highly subsidized high risk pool.</span></p> http://mercatus.org/expert_commentary/aca-enrollees-twice-expensive-other-individual-market-enrollees Wed, 29 Jun 2016 10:11:36 -0400 The Perks of a Privatized Metro System http://mercatus.org/expert_commentary/perks-privatized-metro-system <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Something interesting happened following Metro’s single-tracking and long-term shutdowns.</span></p> <p class="p1"><span class="s1">Lyft started offering discounted rides to Washington commuters. With these discounts, the ride sharing giant joins FedEx, Underwriters Laboratories, private schools, passport expeditors, and many other businesses to become one more private-sector company offering to fix the blunders&nbsp;of&nbsp;a public-sector enterprise. According to market skeptics, this isn’t the way it’s supposed to work – Lyft is a profit-seeking entity. And according to conventional wisdom, profit-seeking companies jump at opportunities to exploit in pursuit&nbsp;of&nbsp;the almighty dollar. With Metro on the ropes and thousands&nbsp;of&nbsp;commuters stranded, conditions are perfect for services like Lyft to charge the absolute maximum the market will bear. Why then are they cutting their price in half?</span></p> <p class="p2"><span style="font-size: 12px; background-color: white;">It turns out that market skeptics are partly right.</span></p> <p class="p1"><span class="s1">Private companies don’t drive prices down and quality up. Just look at Comcast, whose prices only go up while every other price in the tech world keeps going down. According to its own customers, Comcast’s customer service rivals that&nbsp;of&nbsp;the DMV. The private sector doesn’t bestow a magical ability to deliver high quality at low prices. Market proponents and skeptics alike know that Comcast is more like the DMV than Netflix because Comcast faces little competition. Yet neither does competition bestow a magical ability to deliver high quality at low prices.</span></p> <p class="p1"><span class="s1">Metro is but one example. Metro faces all sorts&nbsp;of&nbsp;competition from walking to bikes to private cars to carpools to taxis, Uber, and Lyft. Yet Metro’s service has become so poor as to become – quite literally – non-existent. It turns out that the magic formula is the&nbsp;<i>combination</i>&nbsp;of&nbsp;competition and private enterprise.</span></p> <p class="p1"><span class="s1">Corporations do seek the almighty dollar, but market skeptics go off the rails when they conclude that the correct response is to replace private sector profit-seekers with government. The quest for this almighty dollar is a powerful drive that can be harnessed for good – provided it is complimented by competition. In a competitive environment, the way profit-seeking companies make money is by providing what consumers want at the lowest possible price. This is why Lyft is dropping its prices 50 percent as Metro cuts service. Lyft is a profit-seeking company that faces stiff competition. By cutting its price, Lyft hopes to encourage Metro’s customers to try Lyft. And if those people judge that Lyft delivers a price and quality that Metro can’t, they’ll stay with Lyft even after the metros stop catching fire.</span></p> <p class="p1"><span class="s1">The private sector is composed&nbsp;of&nbsp;sometimes selfish, sometimes altruistic, sometimes brilliant, always fallible humans – the same that comprise the public sector. Lyft might be run by heartless people who care only about making money. Or, Lyft might be run by principled people who care about providing a fair service at a fair price.</span></p> <p class="p1"><span class="s1">As with the public sector, the reality is likely somewhere in the middle. The folly in replacing private business with government enterprise is that the public sector only achieves the common good when, by happy accident, it is mostly composed&nbsp;of&nbsp;altruistic people. The beauty&nbsp;of&nbsp;a competitive free market is that it doesn’t matter whether the people comprising the private sector are altruistic or selfish. Regardless&nbsp;of&nbsp;their motivations, competition forces Lyft’s people to behave as if they care about providing a fair service at a fair price. Because the moment they stop, their customers will move on to Lyft’s competitors.</span></p> <p class="p1"><span class="s1">Competition has gotten us halfway to solving the problem that is Metro. We’ll get the rest&nbsp;of&nbsp;the way when we&nbsp;privatize&nbsp;it. Until we get that combination&nbsp;of&nbsp;competition and private enterprise, Metro will continue to fail.</span></p> http://mercatus.org/expert_commentary/perks-privatized-metro-system Tue, 28 Jun 2016 10:39:56 -0400 United States Is the World’s Leader in International Arms Sales http://mercatus.org/publication/united-states-world-s-leader-international-arms-sales <h5> Publication </h5> <p class="p1">This week’s charts look at global arms transfers using data produced by the Stockholm International Peace Research Institute (SIPRI). The first chart shows that the United States was responsible for a third of total global arms exports from 2011 to 2015. The United States and Russia combined were responsible for 58.0 percent of all international arms sales over that same period.</p><p class="p1"><img height="575" width="575" alt="Top Arms Exporters, 2011-2015" src="http://mercatus.org/sites/default/files/armschart_0.png" /></p> <p class="p1">The second chart shows the top 10 foreign purchasers of US arms. The leading recipient was Saudi Arabia at 9.7 percent, followed closely by the United Arab Emirates at 9.1 percent of total US arms exports. <a href="http://books.sipri.org/files/FS/SIPRIFS1602.pdf">According to SIPRI</a>, “The USA delivered major weapons to at least 96 states in 2011–15, a significantly higher number of export destinations than any other supplier.”</p> <p class="p2"><img height="575" width="575" alt="Top Purchasers of US Arms, 2011-2015" src="http://mercatus.org/sites/default/files/armschart2.png" /></p> <p class="p1">The third chart shows the top 10 arms-producing and military services companies in the world as of 2014. Not surprisingly, the United States dominates with seven companies in the top ten. U.S. companies Lockheed Martin and Boeing came in first and second place, respectively. Indeed, only one non-American company makes the top six.</p> <p class="p2"><img height="431" width="575" alt="Top 10 Arms-Producing and Military Services Companies, 2014" src="http://mercatus.org/sites/default/files/armschart3.png" /></p> <p class="p1">Regardless of one’s view of the desirability of the United States and its companies dominating the global arms scene, the situation still calls to mind President Dwight Eisenhower’s prescient warning in his <a href="http://coursesa.matrix.msu.edu/~hst306/documents/indust.html">1961 farewell address to the nation</a>:</p> <blockquote><p class="p3">This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence—economic, political, even spiritual—is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.</p><p class="p3">In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.</p></blockquote> http://mercatus.org/publication/united-states-world-s-leader-international-arms-sales Tue, 28 Jun 2016 10:52:08 -0400 How Brexit Will Impact the Global Economy http://mercatus.org/expert_commentary/how-brexit-will-impact-global-economy <h5> Expert Commentary </h5> <p class="p1"><span class="s1"><a href="https://twitter.com/DavidBeckworth">David Beckworth</a></span><span class="s2">, economist and research fellow at the Mercatus Center, joined Federalist Radio to discuss Britain’s exit from the EU and how it will impact the global economy. <a href="https://www.aei.org/publication/global-shock-after-uk-exit-vote/"><span class="s1">Dr. Desmond Lachman</span></a>, resident fellow at the American Enterprise Institute, also explained some of the reasons why the UK voted the way they did.</span></p> <p class="p1"><span class="s2">The “Brexit” decision, in some ways considered a populist uproar, comes as a shock to elites all over the world. “Globalization has been integrating our world more and more, really since the 1980’s it’s been accelerating, and I think its bringing some of this tension,” Beckworth said. “One of the biggest mistakes that the EU elites made was handling of the Eurozone crisis.”</span><span style="font-size: 12px; background-color: white;">&nbsp;</span></p> <p class="p1"><span class="s2">We have already seen financial markets and currencies damaged since the vote last week. “I’m afraid that is very likely to continue because what’s also occurred is the UK’s politics has been turned into to turmoil,” Lachman said. “If we do have economic setbacks there and trouble in their financial markets, it’s difficult to see how that’s not going to impact the United States.”</span></p><p class="p1"><a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">Listen here</a></p> http://mercatus.org/expert_commentary/how-brexit-will-impact-global-economy Mon, 27 Jun 2016 18:15:41 -0400 A Balanced Bipartisan Compromise for Strengthening Retirement Security http://mercatus.org/expert_commentary/balanced-bipartisan-compromise-strengthening-retirement-security <h5> Expert Commentary </h5> <p class="p1"><span class="s1">The Bipartisan Policy Center’s <a href="http://bipartisanpolicy.org/library/retirement-security/"><span class="s2">Securing Our Financial Future</span></a> offers a new set of recommendations to strengthen Americans’ retirement income security.&nbsp; The full report can be found <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Report.pdf"><span class="s2">here</span></a> and an executive summary <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Executive-Summary.pdf"><span class="s2">here</span></a>. A useful compendium of graphical information about the recommendations can be found <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Challenges.pdf"><span class="s2">here</span></a>, and an affecting video on the financial challenges facing Americans can be viewed <a href="http://bipartisanpolicy.org/library/retirement-security/"><span class="s2">here</span></a>.&nbsp;</span></p> <p class="p1"><span class="s1">The report was developed by the BPC’s 19-member Commission on Retirement Security and Personal Savings, co-chaired by former Senator Kent Conrad (D-ND) and Jim Lockhart, former principal deputy commissioner of the Social Security Administration (SSA).&nbsp; I served as one of the commission members and was deeply impressed by the co-chairs’ leadership and process acumen, as well as by the other commission members and an exceptionally capable team of staff.&nbsp;</span></p> <p class="p1"><span class="s1">As the commission included experts holding a wide range of policy views, a consensus report was only possible because its work was relentlessly data-driven, and because the co-chairs skillfully incorporated &nbsp;input from the entire commission to forge balanced compromise.&nbsp; It is fashionable in political circles to characterize genuine compromise as containing something for everyone to dislike; a more accurate description in this case is that compromise would lead to far better results than either left or right would receive under the status quo.</span></p> <p class="p1"><span class="s1">The commission’s recommendations were organized into six main themes:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">Improve access to workplace retirement savings plans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for employers to offer plans and to enroll workers in them, and by simplifying the decisions facing participants.&nbsp;</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Promote personal savings for short-term needs and preserve retirement savings for older age</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by making it easier for workers to manage, shift and maintain savings between their various retirement accounts.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Reduce the risk of outliving savings</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by facilitating the offering of retirement plan distribution options that would provide income over a retiree’s full lifetime.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Facilitate the use of home equity for retirement consumption</span><span class="s1" style="font-size: 12px; background-color: white;">, largely through the use of reverse mortgages.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Improve financial capability among all Americans</span><span class="s1" style="font-size: 12px; background-color: white;">, largely by implementing the recommendations of the President’s Advisory Council on Financial Capability, and by clarifying the nomenclature used in key government programs such as Social Security.</span></li><li><span class="s3" style="font-size: 12px; background-color: white;">Strengthen Social Security’s finances and modernize the program</span><span class="s1" style="font-size: 12px; background-color: white;">, by balancing its income and expenditures, and by targeting its benefits more directly on needy households.</span></li></ol> <p class="p1"><span class="s1">The commission <a href="http://cdn.bipartisanpolicy.org/wp-content/uploads/2016/06/BPC-Retirement-Security-Report.pdf"><span class="s2">report</span></a> provides full details of the recommendations in all six areas. &nbsp;Here I will focus on Social Security, where my expertise is concentrated.&nbsp; The BPC Social Security recommendations involve far more details than can be covered here.&nbsp; However, they can be roughly defined by the following general parameters:</span></p><ol><li><span class="s3" style="font-size: 12px; background-color: white;">The proposals would strengthen Social Security finances through a roughly 50/50 blend of changes to revenues and costs </span><span class="s1" style="font-size: 12px; background-color: white;">(per the <a href="https://www.ssa.gov/OACT/solvency/BPC_20160609.pdf"><span class="s2">Social Security Chief Actuary</span></a>, 54% revenues vs. 46% cost containment).&nbsp; Under current law, per Urban Institute projections, Social Security costs would rise from 4.8% of GDP today to roughly 6.2% of GDP by 2034 when the program’s combined trust funds would be depleted and benefits reduced by roughly 22%. Afterwards the financing gap would continue to grow, with eventual costs (6.4% of GDP) being only 73% funded by income (4.7% of GDP) at the end of the valuation period.&nbsp; Under the commission proposals costs would instead rise more gradually to 5.8% of GDP (at the peak of baby boomer retirements in the mid-2030s) and stabilize thereafter, hovering around 5.5% of GDP for most of the mid-21</span><span class="s4" style="font-size: 12px; background-color: white;">st</span><span class="s1" style="font-size: 12px; background-color: white;"> century.&nbsp; The biggest revenue changes would be increases in the Social Security payroll tax rate (from 12.4% to 13.4%) and wage base (to $195,000 by 2020).&nbsp; The biggest cost containment mechanism would be a gradual indexing of the normal retirement age to national longevity gains, rising by one month every two years starting in 2022.&nbsp; Per convention this was counted by the commission as a benefit constraint although in practice, an individual receives higher annual benefits if he/she delays his/her initial benefit claim.&nbsp; The second largest cost containment provision would be to link annual COLAs to the chained Consumer Price Index (C-CPI-U), so that they more closely track national price inflation.</span></li></ol><p class="p2"><b style="font-family: inherit; font-style: inherit;">Figure 1: After the Baby Boomers Retire, the Commission Proposals Would&nbsp;Stabilize Social Security Costs/Revenues as a Share of GDP</b></p><p class="p2"><b style="font-family: inherit; font-style: inherit;">&nbsp;</b><img src="http://mercatus.org/sites/default/files/fig1blahous.png" alt="Figure 1: After the Baby Boomers Retire, the Commission Proposals Would Stabilize Social Security Costs/Revenues as a Share of GDP" width="575" height="375" style="font-size: 12px;" /><span style="font-size: 12px; background-color: white;">&nbsp;</span></p><p class="p1" style="padding-left: 30px;"><span class="s1"><b>&nbsp;</b></span><span class="s3" style="font-size: 12px; background-color: white;">2. Under the commission proposals, real per capita benefits would grow substantially.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; Under current law, program costs would grow at rates beyond that which revenues can finance, resulting in sudden benefit reductions upon trust fund depletion.&nbsp; Under the commission proposals individuals would be spared these benefit reductions, allowing seniors’ Social Security benefits and total disposable income to both grow steadily relative to price inflation.</span></p><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;" class="p1"><span class="s1" style="font-size: 12px;"><b>Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older</b></span><b style="font-family: inherit; font-style: inherit; background-color: white;">&nbsp;</b></p><p><img src="http://mercatus.org/sites/default/files/fig2blahous.png" alt="Figure 2: Projected Average Disposable Income (in $2015) for Individuals 62 and Older" width="575" height="365" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">3. The commission proposals would target benefit growth on low-income households and significantly reduce elderly poverty.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; For example, a two-earner couple born in 1993, in the bottom income quintile, working for 40 years with equal earnings, would receive benefits 63% higher than could be paid under current law.&nbsp; Those in the second income quintile would receive a 49% benefit increase.&nbsp; Not only would these benefits be substantially higher than could be paid under current law, they are even higher (24% and 12% higher, respectively) than the current-law benefit formula that is significantly underfunded.&nbsp; Because of this faster benefit growth for low-income households, senior poverty levels would be substantially lower under the commission proposals not only than under current law – but even relative to an imaginary scenario in which all of Social Security’s currently unfinanced benefits were somehow fully funded.</span></p><p class="p1"><span class="s1" style="font-size: 12px; background-color: white;">&nbsp;</span><b style="font-family: inherit; font-style: inherit; background-color: white;">Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals</b></p><p class="p1"><img src="http://mercatus.org/sites/default/files/fig3blahous.png" alt="Figure 3: Senior Poverty Would Be Markedly Reduced Under the Commission Proposals" width="575" height="356" style="font-size: 12px; background-color: white;" /></p><p class="p1"><span class="s1"><b>Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993</b></span></p><p class="p1"><img src="http://mercatus.org/sites/default/files/fig4blahous.png" alt="Figure 4: Projected Lifetime Social Security/SSI Benefits for Workers Born in 1993" width="575" height="186" style="font-size: 12px; background-color: white;" /></p><p class="p1" style="padding-left: 30px;"><span class="s3" style="font-size: 12px; background-color: white;">4. Returns on work would be higher under the commission proposals.</span><span class="s1" style="font-size: 12px; background-color: white;">&nbsp; It is often extremely difficult to design proposals that would provide substantial support for low-income individuals while also providing adequate returns as individuals engage in paid employment.&nbsp; Figure 4, however, shows that throughout the income spectrum, individuals would receive larger increases under the proposals the more years that they work.&nbsp; This is in sharp contrast with current law, in which <a href="https://books.google.com/books?id=V7Q-zZjbrfIC&amp;pg=PA164&amp;lpg=PA164&amp;dq=Blahous+Social+Security+returns+on+work+seniors&amp;source=bl&amp;ots=lhfaSxS3zV&amp;sig=znCJNla3ZS9-YsOL98syrF0jfjc&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiMzIeQ-LvNAhWFqB4KHahaD8c4ChDoAQhEMAY#v=onepage&amp;q=Blahous%20Social%20Security%20returns%20on%20work%20seniors&amp;f=false"><span class="s2">returns on work decline dramatically</span></a> for seniors, at precisely the point in their lives when they must make decisions as to whether to remain in the workforce.&nbsp; The commission proposals would accomplish this by reforming the benefit formula to accrue benefits with additional years of work rather than basing benefit levels solely on career average earnings.</span></p> <p class="p1"><span class="s1">The BPC retirement security commission proposals reflect a roughly 50/50 compromise between left and right as to how to shore up the finances of Social Security.&nbsp; All program participants would benefit from the stabilization of program finances, with the largest gains accruing to low-wage workers.</span></p> http://mercatus.org/expert_commentary/balanced-bipartisan-compromise-strengthening-retirement-security Mon, 27 Jun 2016 11:14:55 -0400 Daniel Griswold Discusses the Brexit Vote on C-SPAN http://mercatus.org/video/daniel-griswold-discusses-brexit-vote-c-span <h5> Video </h5> <iframe frameborder='0' width='512' height='330' scrollable='no' src='http://www.c-span.org/video/standalone/?411218-5/washington-journal-daniel-griswold-brexit-vote'></iframe> <p class="p1"><span class="s1">Daniel Griswold talked about the fallout from the United Kingdom’s vote in favor of leaving the European Union.</span></p><div class="field field-type-text field-field-embed-code"> <div class="field-label">Embed Code:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> &lt;iframe frameborder=&#039;0&#039; width=&#039;512&#039; height=&#039;330&#039; scrollable=&#039;no&#039; src=&#039;http://www.c-span.org/video/standalone/?411218-5/washington-journal-daniel-griswold-brexit-vote&#039;&gt;&lt;/iframe&gt; </div> </div> </div> http://mercatus.org/video/daniel-griswold-discusses-brexit-vote-c-span Tue, 28 Jun 2016 16:31:52 -0400 Brexit http://mercatus.org/features/brexit contact@mercatus.org (Mercatus.org) <h5> Feature </h5> <p><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; font-weight: normal; background-color: #ffffff;">Mercatus Center scholars weigh in on the United Kingdom's historic vote to leave the European Union, examining the impetus behind the vote and the potential future repercussions.</span></p> http://mercatus.org/features/brexit Fri, 24 Jun 2016 14:54:45 -0400 Mercatus Center Scholars Weigh in on Brexit http://mercatus.org/expert_commentary/brexit <h5> Expert Commentary </h5> <p>Mercatus Center scholars weigh in on the United Kingdom's historic vote to leave the European Union, examining the impetus behind the vote and the potential future repercussions.</p><h2>MEDIA AND RADIO APPEARANCES</h2><p><a href="http://www.mercatus.org/david-beckworth">David Beckworth</a> <span style="font-size: 12px; background-color: white;">discusses the role central banks played in the Brexit with <a href="http://www.bloomberg.com/news/videos/2016-06-27/did-the-ecb-plant-the-seed-that-grew-into-brexit">Bloomberg's Matt Miller, Joe Weisenthal and Scarlet Fu on "What'd You Miss?"&nbsp;</a></span></p><p><iframe src="http://www.bloomberg.com/api/embed/iframe?id=pjkB9GqVQFGruUWhD0U2ZQ" allowscriptaccess="always" frameborder="0" height="330" width="512"></iframe></p><p><a href="http://www.mercatus.org/david-beckworth">David Beckworth</a> <a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">j</a><span style="font-size: 12px; background-color: white;"><a href="https://soundcloud.com/fdrlst/how-brexit-will-impact-the-global-economy">oined Federalist Radio</a> to discuss <a href="http://thefederalist.com/2016/06/27/radio-how-brexit-will-impact-the-global-economy/">Britain’s exit from the EU and how it will impact the global economy.</a></span></p><p><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a> appeared on C-SPAN to discuss&nbsp;<span style="font-size: 12px; background-color: white;">the fallout from the United Kingdom’s vote in favor of leaving the European Union.</span></p><p><object id="cspan-video-player" classid="clsid:d27cdb6eae6d-11cf-96b8-444553540000" codebase="http://fpdownload.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" align="middle" height="330" width="512"><param name="allowScriptAccess" value="true" /><param name="movie" value="https://static.c-span.org/assets/swf/CSPANPlayer.1434395986.swf?pid=411218-5" /><param name="quality" value="high" /><param name="bgcolor" value="#ffffff" /><param name="allowFullScreen" value="true" /><param name="flashvars" value="system=http://www.c-span.org/common/services/flashXml.php?programid=445954&amp;style=inline&amp;version=2014-01-23" /><embed name="cspan-video-player" src="https://static.c-span.org/assets/swf/CSPANPlayer.1434395986.swf?pid=411218-5" allowscriptaccess="always" bgcolor="#ffffff" quality="high" allowfullscreen="true" type="application/x-shockwave-flash" pluginspage="http://www.macromedia.com/go/getflashplayer" flashvars="system=http://www.c-span.org/common/services/flashXml.php?programid=445954&amp;style=inline&amp;version=2014-01-23" align="middle" height="330" width="512" title="Adobe Flash Player"></embed></object></p><p><span style="font-family: inherit; font-style: inherit; background-color: white;"><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: inherit; font-weight: bold; background-color: #ffffff;">Richard Williams appeared on </span><span class="s1" style="font-size: 12px; background-color: white;">the <a href="http://mercatus.org/podcast/2016/06/24/richard-williams-john-gambling-radio-show-new-york">John Gambling Radio Show (New York)</a> to&nbsp;</span><span style="font-family: Helvetica, Arial, sans-serif; font-size: 12px; font-style: normal; background-color: #ffffff;">discuss the Brexit vote's relationship to EU regulations.</span></span></p><p class="p1"><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a> appeared on the <a href="http://mercatus.org/podcast/2016/06/24/daniel-griswold-wvlk-radio-kentucky">Kruser and Krew radio show on WVLK Radio (Kentucky)</a> to discuss the historic Brexit vote.</p><p class="p1"><a href="http://www.mercatus.org/richard-williams">Richard Williams</a> appeared on the <a href="http://mercatus.org/podcast/2016/06/28/richard-williams-discusses-world-after-brexit-financial-myth-busting-show">Financial Myth Busting Show to discuss the world after Brexit</a>.</p><h2>ARTICLES AND COMMENTARY</h2><p><a href="http://www.mercatus.org/daniel-griswold" style="font-size: 12px; background-color: white;">Daniel Griswold</a><span style="font-size: 12px; background-color: white;">, in </span><a href="http://www.forbes.com/sites/realspin/2016/06/25/steep-price-brexit/#5234b604774b" style="font-size: 12px; background-color: white;">Forbes,</a><span style="font-size: 12px; background-color: white;">&nbsp;discusses the steep price of Brexit:</span></p><blockquote><p class="p1"><span class="s1">British voters delivered a shock to global markets on Thursday with their 52-48% vote to leave the European Union. When the turmoil subsides, more sober-minded Brits may come to regret their decision to abandon their four-decade membership in the continental-sized common market.</span></p><p class="p1"><span class="s1">For now, Great Britain remains a full member of the EU. Once it initiates its exit under Article 50 of the Lisbon Treaty, divorce proceedings could take as long as two years. Meanwhile, Britain remains the world’s fifth largest economy, a nation open to the world and a natural ally of the United States.</span></p><p class="p1"><span class="s1"><a href="http://mercatus.org/expert_commentary/brexit-comes-steep-price">Continue reading</a></span></p></blockquote> <p class="p1"><span class="s1" style="font-size: 12px;"><a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8344%3d9-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4406508&amp;Preview=False&amp;DistributionActionID=30924&amp;Action=Follow+Link">David Beckworth</a></span><span class="s2" style="font-size: 12px;"> has this to say about&nbsp;Brexit causing the biggest global monetary shock since 2008&nbsp;at his <a href="http://mercatus.pr-optout.com/Tracking.aspx?Data=HHL%3d8344%3d9-%3eLCE59.61%3a%26SDG%3c90%3a.&amp;RE=MC&amp;RI=4406508&amp;Preview=False&amp;DistributionActionID=30923&amp;Action=Follow+Link"><span class="s1">blog</span></a>:&nbsp;</span></p> <blockquote><p class="p1"><span class="s1">Brexit is the biggest global monetary shock since 2008. This could be the tipping point that turns the existing global slowdown of 2016 into a global recession. Here is why.</span></p><p class="p1"><span class="s1">First, Brexit is adding further strength to an already overvalued dollar.&nbsp;The trade weighted dollar&nbsp;had appreciated roughly 25 percent between mid-2015 and early-2016. That is a very sharp increase in so short a time. It has come down some, but not much as seen in the figure below (red line):</span></p><p class="p1"><span class="s1"><img height="265" width="575" src="http://mercatus.org/sites/default/files/fred.JPG" /></span></p><p class="p1"><span class="s1"><a href="http://macromarketmusings.blogspot.com/2016/06/brexit-biggest-global-monetary-shock.html">Continue reading</a></span></p></blockquote><p class="p1"><span class="s1"><a href="http://mercatus.org/scott-sumner">Scott Sumner</a>&nbsp;discusses how the Brexit is not about Britain at the Library of Economics and Liberty's <i>Econlog:</i></span></p><blockquote><p class="p1"><span class="s1">I'm seeing a lot of confusion about the implications of Brexit. Here are two common misconceptions:</span></p><p class="p1"><span class="s1">1. Some people see it as a real shock, whereas it's primarily a monetary shock.</span></p><p class="p1"><span class="s1">2. Some see it affecting Britain's economy by disrupting trade, whereas it actually hurts the eurozone more, by depressing expected NGDP growth. The real effects are often overstated; Norway and Switzerland do fine outside the EU.</span></p><p class="p1"><span class="s1"><a href="http://econlog.econlib.org/archives/2016/06/brexit_is_not_a.html">Continue reading</a></span></p></blockquote><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span style="font-family: inherit; font-style: inherit; background-color: white;"><a href="http://mercatus.org/richard-williams" style="font-size: 12px;">Richard Williams</a><span style="font-size: 12px;">, in&nbsp;</span><a href="http://mercatus.org/expert_commentary/overregulated-britain" style="font-size: 12px;">his piece for US News &amp; World Reports</a><span style="font-size: 12px;">, discusses overregulation as motive for the Brexit:</span></span></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">Is the "Brexit" – the possible departure of the U.K. from the European Union – a major sign of a populist revolt against bureaucracy? It&nbsp;<a href="http://globalriskinsights.com/2016/03/brexit-better-britain/" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">would seem so</span></a>, and the warnings of potential consequences seem dire.</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">Some argue that if the United Kingdom leaves the EU, then there will be a bureaucratic regulation-fest to make sure that no area currently regulated goes&nbsp;<a href="http://www.independent.co.uk/news/uk/politics/eu-referendum-brexit-would-prompt-regulationfest-of-replacing-brussels-bureaucracy-leading-lawyers-a6927746.html" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">unregulated</span></a>. But that would be nothing new for those long suffering under the weight of British regulations as ably chronicled in the humorous yet depressing book, "<a href="https://www.amazon.com/How-Label-Goat-Regulations-Strangling/dp/1905641567/ref=sr_1_2?ie=UTF8&amp;qid=1466257182&amp;sr=8-2&amp;keywords=how+to+label+a+goat" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">How to Label a Goat: The Silly Rules and Regulations That Are Strangling Britain</span></a>."</span></p><p class="p2" style="font-size: 12px;"><span class="s1" style="font-size: 12px;"><a href="http://www.usnews.com/opinion/articles/2016-06-20/expect-more-brexit-style-sentiments-if-regulations-arent-reformed" style="font-size: 12px;">Continue reading</a></span></p></blockquote><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;">And in&nbsp;<a href="http://reason.com/archives/2016/06/22/the-brexit-vote-is-a-referendum-on-the-e" style="font-size: 12px;">his piece for Reason Magazine</a>, he writes:</p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">How many people does it take to change a lightbulb in England? Depends on what the European Union (EU) says.</span></p><p class="p1" style="font-size: 12px;"><span class="s1" style="font-size: 12px;">A priest in Suffolk, England used to hire a man to climb a ladder to change his lightbulbs. That was fine until the European Union Working at Heights Directive banned this activity so that now the priest must spend&nbsp;1,700 pounds (about $2,000).</span></p><p class="p1" style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif; background-color: #ffffff;"><a href="http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations" style="font-size: 12px;">Continue reading</a></p></blockquote><p style="font-weight: normal; font-style: normal; font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><span class="s1" style="font-size: 12px; background-color: white;"><span style="font-size: 12px;"><a href="http://mercatus.org/daniel-griswold">Daniel Griswold</a></span></span><span class="s2" style="font-size: 12px; background-color: white;">, Director of the Program on the American Economy &amp; Globalization, had this to say on leaving a free-trade zone:&nbsp;</span></p><blockquote style="font-size: 12px; font-family: Helvetica, Arial, sans-serif;"><p class="p1" style="font-size: 12px;"><span class="s2" style="font-size: 12px;">Both sides are exaggerating the consequences of Britain's vote on Thursday whether to stay in the EU. And both sides have good and not-so-good arguments to back their case. All things considered, there is probably more risk for Britain in leaving the huge free-trade area on its doorstep than in remaining and working for reform within the EU.</span></p></blockquote> http://mercatus.org/expert_commentary/brexit Wed, 29 Jun 2016 11:36:50 -0400 Ryan Is Right to Tackle Federal Regulations, but We Must Look at State and Local, Too http://mercatus.org/expert_commentary/ryan-right-tackle-federal-regulations-we-must-look-state-and-local-too <h5> Expert Commentary </h5> <p class="p1"><span class="s1">Earlier this month, Speaker <a href="http://thehill.com/people/paul-ryan"><span class="s2">Paul Ryan</span></a> (R-Wis.) and House Republicans announced a <a href="http://www.speaker.gov/press-release/a-better-way"><span class="s2">series of policy proposals</span></a> to create "a confident America, where everyone has the chance to go out and succeed no matter where they start in life." The goals of this initiative, "<a href="http://abetterway.speaker.gov/"><span class="s2">A Better Way</span></a>," are certainly admirable. A major focus of the proposals released so far concern removing barriers to opportunity and upward mobility through reforming federal regulations and increasing congressional oversight of federal agencies. However, while this a good place to start, the barriers that exist at a federal level are only a small piece of the puzzle.</span></p> <p class="p2"><span class="s1">In fact, the most pervasive barriers to opportunity are not a product of federal regulations or agencies. Instead, state and local governments are responsible for most of what stands in the way of individuals finding meaningful work in today's economy. This, like the issues that Ryan has highlighted so far, is something that Congress has the power to combat in a significant way.</span></p> <p class="p1"><span class="s1">Disregarding the role of state and local governments will leave much of the problem unchanged. Only when Washington takes fundamental reform at a state-level seriously will everyone have a genuine chance to go out and succeed in the manner that Ryan has suggested.</span></p> <p class="p1"><span class="s1">Take, for example, occupational licensing and other regulatory barriers — such as <a href="http://mercatus.org/site-search?search=%2522certificate%2520of%2520need%2522"><span class="s2">certificate-of-need laws</span></a> — that obstruct competition and impede the entry to markets. Almost exclusively carried out at a state and local level, these barriers act to protect those already in an industry from increased competition. Often, they are enforced long after their initial justifications have evaporated (if they ever really existed in the first place). All of this is done at the expense of the opportunity for those seeking to practice their chosen profession. As a <a href="http://ij.org/wp-content/uploads/2015/04/licensetowork1.pdf"><span class="s2">recent report</span></a> from the Institute for Justice finds, these burdens fall particularly on minorities, those of lesser means and those with less education.</span></p> <p class="p1"><span class="s1">As if it wasn't bad enough that the growth in occupational licensing has gone unchecked for nearly five decades — approximately 5 percent of the workforce needed a license to work in 1950, while more than 25 percent requires a license today — Congress is directly responsible for some other state-level barriers that act to compound these problems. It was Congress that initially <a href="http://mercatus.org/publication/40-years-certificate-need-laws-across-america"><span class="s2">required states to pass certificate-of-need laws in the mid-1970s</span></a>, which require doctors and other providers to <a href="http://www.usatoday.com/story/opinion/2014/10/14/health-care-certificate-of-need-cartel-innovation-column/17272613/"><span class="s2">receive permission</span></a> from the state before they may open, expand or invest in their practice. Although Congress no longer requires states to enforce these laws (and hasn't since the mid-1980s), nearly two-thirds of states continue to use these laws to limit both the opportunities for those seeking to work in healthcare and increase the costs for those seeking care.</span></p> <p class="p1"><span class="s1">Breaking down these barriers would go a long way toward helping those in poverty and creating opportunities for those looking for work. In fact, by focusing on these impediments to competition, a twofold benefit could be achieved: opportunity becomes realized easier and life becomes more affordable.</span></p> <p class="p1"><span class="s1">But what can Congress do about state-level barriers? The principles of federalism certainly require a lighter touch when it comes to federal influence over state and local governments. However, this does not mean that Congress is powerless. Reinvigorating federal competition policy via the Federal Trade Commission (FTC) could go a long way toward fighting anticompetitive state-level policies, which has been a focus of the FTC's advocacy and litigation for decades. Moreover, while the most recent installment of the policy proposals discusses exercising the power of purse over state agencies, the same could be said for using federal funds to influence pro-competitive reforms at a state level. After all, in the case of certificate-of-need laws, this was how Congress got states to pass them in the first place.</span></p> <p class="p1"><span class="s1">Besides, expanding these efforts in this way may actually bridge partisan divides. The proposals have been <a href="http://www.usatoday.com/story/news/politics/2016/06/07/paul-ryan-starts-unveiling-plan-better-gop/85535902/"><span class="s2">criticized by Democrats</span></a> as failing to tackle the real issues at hand, but it does not have to be a partisan effort. Reforming barriers to work and opportunity is an issue that the <a href="https://www.whitehouse.gov/the-press-office/2016/06/17/fact-sheet-new-steps-reduce-unnecessary-occupation-licenses-are-limiting"><span class="s2">Obama administration has taken up</span></a> over the past year. In the White House's most recent <a href="https://www.whitehouse.gov/sites/default/files/docs/licensing_report_final_nonembargo.pdf"><span class="s2">report on occupational licensing</span></a>, in which the administration explains the damaging effects of occupational licensing, it concludes that "[t]he stakes involved are high, and to help our economy grow to its full potential we need to create a 21st century regulatory system — one that protects public health and welfare while promoting economic growth, innovation, competition, and job creation." This statement could have very easily been included in any of the policy reports released so far by Ryan.</span></p> <p class="p1"><span class="s1">There seems to be little disagreement that our current regulatory approach is standing in the way. And the push for reform should be a bipartisan effort. However, the focus should be on not only returning balance and accountability between the separate branches of the federal government. It should also ensure that every level of government is held accountable. Working toward that end is a good first step toward finding a better way.</span></p> http://mercatus.org/expert_commentary/ryan-right-tackle-federal-regulations-we-must-look-state-and-local-too Mon, 27 Jun 2016 11:10:12 -0400 Affordable Care Act Turmoil: Large Losses in the Individual Market Portend an Uncertain Future http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future <h5> Publication </h5> <p class="p1"><span class="s1">The Affordable Care Act (ACA) significantly altered the rules governing health insurance, especially in the individual market. While the law has increased the number of people with health insurance, lower-than-expected enrollment in the new health insurance exchanges and significant insurer losses have resulted in substantial premium increases and insurer withdrawals from state markets. These negative outcomes cast increasing doubt on the ACA and its long-term sustainability.</span></p> <p class="p1">A new study for the Mercatus Center at George Mason University uses 2014 data from the Department of Health and Human Services to analyze the performance of 174 insurers who offered qualified health plan (QHP) coverage to both individuals and small groups (generally firms with fewer than 50 workers). The study finds that, despite substantial subsidies, insurers suffered larger losses selling QHPs in the individual market than they did selling nearly identical policies in the small group market. These losses were driven largely by the fact that the population that enrolled in individual QHPs had much higher claims costs than the population enrolled in small group QHPs, or the population enrolled in either individual or group non-QHPs (i.e., plans in place before the ACA exchanges launched and ACA-compliant plans that are not certified as QHPs).</p> <p class="p1"><span class="s1">This study is the second in a series examining the ACA’s performance using the same dataset.&nbsp;</span></p> <p class="p3">KEY POINTS</p> <ul class="ul1"> <li class="li4">Individual QHPs had loss ratios (medical claims divided by premium income) of 110 percent. These were significantly higher than the loss ratios for group QHPs (82 percent) and individual non-QHPs (83 percent), both of which were well within the historic norm for health insurance plans.</li> <li class="li4">These losses came as the result of per-enrollee medical claims that were 24 percent higher for individual QHPs than for group QHPs and 93 percent higher for individual QHPs than for individual non-QHPs.</li> <li class="li4">The large losses came despite the ACA targeting the individual QHP market with significant subsidies, particularly payments through the reinsurance program equal to 20 percent of premium income. The reinsurance program is set to expire after 2016, which will undoubtedly cause premiums to rise as insurers strive to reach profitability.</li> <li class="li4">These results indicate that the ACA’s regulations may be unsuitable for the individual market. This situation could pressure policymakers to revise or reverse some of the changes made by the ACA.</li></ul> <p class="p3">BACKGROUND</p> <p class="p1">The ACA required that insurers participating in the individual market offer coverage to any applicant, but restricted the insurers’ ability to charge premiums that reflect applicants’ likely expenditures. These requirements make individual insurance significantly more expensive for relatively young and healthy people and create incentives for individuals to delay purchasing coverage until they anticipate needing medical care. To offset these incentives, the ACA provided income-related subsidies for people purchasing exchange coverage and imposed a tax penalty on those without the required coverage.</p> <p class="p1">Since the ACA’s changes introduced greater uncertainty into the individual market, the law established a temporary reinsurance program for insurers offering ACA-compliant plans in the individual market, in addition to the risk adjustment and temporary risk corridor programs available to insurers offering QHPs in both the individual and group markets. The reinsurance program compensates insurers for a large share of expenses incurred by “high risk individuals,” financed by fees on nearly everyone with private insurance.</p> <p class="p3">SUMMARY</p> <p class="p1">Individual QHPs suffered significantly larger losses than both individual non-QHPs and group QHPs despite significant subsidies that boosted premium income in the individual QHP market.</p> <ul class="ul1"> <li class="li4">Total revenue per enrollee (before risk corridor claims) was $5,484 for individual QHPs but only $4,812 for group QHPs. This disparity was driven largely by subsidies from the reinsurance program that totaled 20 percent of individual QHP premium income.</li> <li class="li4">Insurers received average reinsurance payments of $915 per enrollee, on net, for their individual QHPs in 2014. For group QHPs, however, insurers had to pay into the reinsurance program an average of $61 per enrollee.</li> <li class="li4">Insurers would have needed roughly 31 percent higher average premiums to have covered their expenses selling individual QHPs in 2014 without the reinsurance program. This suggests that large premium increases will be necessary, because (1) enrollees are more costly than expected and (2) the reinsurance program expires at the end of 2016.</li> </ul> <p class="p1">Individual QHPs had loss ratios of 110 percent, compared to loss ratios for group QHPs and individual non-QHPs of 82 percent and 83 percent, respectively. The large losses for individual QHPs were driven by high medical claims.</p> <ul class="ul1"> <li class="li4">Insurers’ average per-enrollee medical claim for individual QHPs was $4,973, much higher than the average per-enrollee medical claim of $2,581 for individual non-QHPs and $4,007 for group QHPs.</li> <li class="li4">In proportional terms, enrollee medical claims for individual QHPs were 24 percent higher than for group QHPs and 93 percent higher than for individual non-QHPs.</li> <li class="li4">The dramatically different experiences of nearly identical plans in the two QHP markets may be explained by features of group coverage that limit adverse selection pressures resulting from the ACA’s insurance market rules and premium restrictions.</li> </ul> <p class="p1">The poor performance of individual QHPs relative to group QHPs was generally consistent across insurers, although overall performance varied significantly across insurers, with the new ACA-sponosored cooperatives (co-ops) performing the worst.</p> <ul class="ul1"> <li class="li4">The carrier with a sizeable market share that fared the best in the individual market was Kaiser Permanente, while the co-ops generally had the worst results.</li> <li class="li4">The risk adjustment program produced large losses for group QHPs offered by co-ops, because the co-ops were collectively assessed a risk adjustment payment of $975 per enrollee.</li></ul> <p class="p3">CONCLUSION</p> <p class="p1">Insurers offering both individual and group QHPs fared reasonably well in the group market but generally incurred large overall losses in the individual market. These losses occurred despite large reinsurance payments overwhelmingly benefitting individual QHPs and subsidies that were only available to people purchasing individual QHPs through an exchange. The large losses on individual QHPs did not occur in the group market, suggesting that the ACA’s individual market rules and regulations may be incompatible with a well-functioning insurance market because they trigger significant adverse selection pressure.</p> <p class="p1">Although the reinsurance program significantly lowered individual QHP premiums in 2014, premiums were still not low enough to attract a sufficient number of younger and healthier enrollees to create a balanced risk pool. Preliminary data indicate that insurers’ losses were significantly larger in 2015 than in 2014. These increased losses, coupled with the scheduled expiration of the reinsurance and risk corridor programs, will likely lead to substantially higher premiums in 2017. Yet higher premiums will further reduce the attractiveness of individual QHPs to younger and healthier enrollees, resulting in a market that will appeal primarily to lower-income individuals who receive large subsidies and to people with expensive health conditions. To avoid such an outcome, it is increasingly likely that the individual insurance market changes made by the ACA will have to be revised or reversed.</p> http://mercatus.org/publication/affordable-care-act-turmoil-large-losses-individual-market-portend-uncertain-future Wed, 29 Jun 2016 10:09:31 -0400 The Evolving Role of the USDA in the Food and Agricultural Economy http://mercatus.org/publication/evolving-role-usda-food-and-agricultural-economy <h5> Publication </h5> <p class="p1">Since its inception more than a century and a half ago, the US Department of Agriculture (USDA) has experienced enormous growth in both size and complexity—as has the industry it seeks to serve. Today the USDA is among the largest federal employers and its 2014 budget exceeded $160 billion. Its spectrum of activities span from the protection of rural farm interests to urban food assistance. Consequently, the department is the target of a wide range of interest groups besides farmers, including food assistance advocates and advocacy groups interested in issues such as obesity, animal welfare, food safety, the environment, and more. The disparate agendas of these groups make it difficult for Congress to assemble a unified policy package each time USDA’s programs are due for reauthorization. The latest reauthorization, the Agricultural Act of 2014, was signed into law two years late in February 2015.</p> <p class="p1">In a new study for the Mercatus Center at George Mason University, economist Jayson L. Lusk documents the changes in American agriculture since the USDA’s inception and the expansion of the department’s mission. Much of the USDA’s regulation is outdated, wasteful, and conflicting.</p> <p class="p3">CHANGING INDUSTRY, CHANGING DEPARTMENT</p> <p class="p4">American Farming Has Changed Drastically since 1862</p> <ul class="ul1"> <li class="li5">In 1900, 40 percent of Americans worked on farms. Today, a mere 1 percent do.</li> <li class="li5">Despite massive growth in output, agriculture accounts for less than 1 percent of US GDP today.</li> <li class="li5">Whereas farm households previously earned less than the average US household, today they earn over $20,000 more than the average household and have nearly triple the average household’s net worth.</li> <li class="li5">Farm households today are more financially diversified than in the past and depend on agriculture for less than a quarter of their income.</li> </ul> <p class="p4">The USDA’s Responsibilities Have Also Changed Drastically since 1862</p> <ul class="ul1"> <li class="li5">When the USDA was established in 1862, its stated mission was to collect foreign seeds and distribute them to farmers.</li> <li class="li5">In 1906, Congress passed laws requiring the inspection of meat, poultry, and eggs, and the USDA was tasked with enforcing food safety.</li> <li class="li5">During the Great Depression, the USDA mandated price floors and bought surplus crops. This unintentionally encouraged overproduction, lowering food prices, and the USDA quickly exhausted its $500 million budget.</li> <li class="li5">As part of the New Deal, farmers were given subsidies for not planting crops.</li> <li class="li5">Under Lyndon B. Johnson’s administration, the USDA began to oversee food stamp and commodity distribution programs, and a large increase in spending ensued.</li> </ul> <p class="p4">The USDA’s Outdated Farm Policies Continue to Affect Production</p> <p class="p1">In the United States fewer, larger farms now produce more with less labor than in the past, and farmers are in better financial standing relative to other workers, but USDA farm policy continues to subsidize farmers—often via programs tied to Depression-era polices. For example, it was only in 2015 that the Supreme Court struck down an order from the 1940s regarding raisin marketing, which Justice Elena Kagan described as “the world’s most outdated law.”</p> <p class="p3">THE USDA TODAY</p> <p class="p1">Much of current USDA spending goes toward farm subsidies and food assistance programs such as the Supplemental Nutrition Assistance Program (SNAP).</p> <p class="p1">Farm subsidies can have unintended effects:</p> <ul class="ul1"> <li class="li5">Offering an agricultural subsidy creates an incentive to produce more. In the case of farming, much of the benefit from subsidies is captured by landowners or holders of seed patents rather than by small farmers. The overall result is an inefficient use of resources.</li> <li class="li5">Research suggests that subsidies actually harm some farmers and consumers. By encouraging the production of commodity crops, subsidies reduce fruit and vegetable production, leading to higher prices for consumers.</li> </ul> <p class="p1">Early food assistance programs were designed to alleviate farm surpluses, but there is little evidence that child nutrition, school lunch, or food stamp programs actually increase farm prices:</p> <ul class="ul1"> <li class="li5">It is estimated that for every dollar spent on SNAP, farmers benefit by less than one cent.</li> <li class="li5">However, research suggests that SNAP spending does reduce food insecurity.</li></ul> <p class="p3">ECONOMIC CONSIDERATIONS</p> <p class="p1">Much of the USDA’s activity is justified by the claim that it corrects market failures and ensures that markets remain competitive and do not create unnecessary costs. In fact, most USDA activities have little to do with addressing “unfair” competition. In cases where unfair competition does exist, there are already a variety of federal laws under which victims can sue for redress.</p> <ul class="ul1"> <li class="li5"><i>USDA farm policies sometimes reduce competition in the market.</i> A number of USDA actions, such as marketing orders (regulations), actually seek to promote market power and reduce competition. Some marketing orders allow commodity organizations (essentially trade associations) to control supply, which raises prices and harms consumers. Also, agricultural cooperatives are exempt from antitrust law, even though they coordinate business activities in a way that can reduce competition.</li> <li class="li5"><i>As public choice theory predicts, farm policy is influenced by political interests.</i> The costs of agricultural subsidies are diffused and go unnoticed by taxpayers, but the payouts are concentrated on a smaller, better-organized group of farmers who can lobby for redistributive policies. Research has found that legislators who receive donations from pro-farm groups tend to vote in favor of such redistributive policies.</li> </ul> <p class="p2"><span style="font-size: 12px; background-color: white;">CONCLUSION</span></p> <p class="p1">The size, budget, and responsibilities of the USDA have grown tremendously since its inception. The department today takes on an array of varied and often conflicting tasks. Research suggests that much of the agricultural regulatory apparatus has become outdated as the industry has evolved radically over time. This situation presents opportunities to reform the USDA in order to meet today’s challenges.</p> http://mercatus.org/publication/evolving-role-usda-food-and-agricultural-economy Wed, 29 Jun 2016 10:13:56 -0400 The Brexit Vote is a Referendum on the European Union’s Thousands of Stifling Regulations http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations <h5> Expert Commentary </h5> <p class="p1"><span class="s1">How many people does it take to change a lightbulb in England? Depends on what the European Union (EU) says.</span></p> <p class="p3"><span class="s1">A priest in Suffolk, England used to hire a man to climb a ladder to change his lightbulbs. That was fine until the European Union Working at Heights Directive banned this activity so that now the priest must spend</span><span style="font-size: 12px; background-color: white;">1,700 pounds (about $2,000)</span><span style="font-size: 12px; background-color: white;">.</span></p><p class="p3"><span style="font-size: 12px; background-color: white;"> In the next seven years, they added an additional 12,000 regulations (about 1,700 per year). The vast majority of them (only about 1 in 200) have no analysis of the likely impacts. This is problematic as the costs of EU regulations are estimated to be above </span><a style="font-size: 12px; background-color: white;" href="http://openeuropeblog.blogspot.com/2009/04/how-many-of-our-laws-are-made-in.html"><span class="s2">70 percent</span></a><span style="font-size: 12px; background-color: white;"> of the costs of all regulation.&nbsp;</span></p> <p class="p3"><span class="s1">But relative to the pace of regulations put out by the U.S. federal government, the EU could be viewed as highly restrained. In 2015 alone,&nbsp; the United States put out <a href="http://thehill.com/regulation/administration/264456-2015-was-record-year-for-federal-regulation-group-says"><span class="s2">3,378</span></a></span><span class="s2"> </span><span class="s1">rules (with another 2,234 under consideration).</span></p> <p class="p3"><span class="s1">How do we end up with so many regulations, including the ones that may cause a church to close down?</span></p> <p class="p3"><span class="s1">The standard answer in economics is "concentrated benefits and dispersed costs." What that means is that there are always groups—whether they are industry groups or activists groups—who gain a lot from an individual regulation, meaning they get the concentrated benefits. But the people who bear the costs—consumers, small business owners, and workers—generally pay small costs for each individual rule. As the rules add up, so do the costs. The issue is that while ordinary people bear these costs, the incentive for any individual to object to a single regulation is fairly small.&nbsp;</span></p> <p class="p3"><span class="s1">The United States has its own share of stupid rules like specifying the number of <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=145.135"><span class="s2">cherries</span></a> that must be in fruit cocktail or the <a href="http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=145.180"><span class="s2">11 different allowed ways</span></a> to pack pineapple in a can. And we don't do a very good job at looking at the impact of our rules either, for big or small. Between 2004 and 2013 only 116 out of the 37,000 regulations had estimates of benefits and costs. How about impacts on small businesses? The EPA recently certified that a gigantic rule expanding their jurisdiction over waters in the United States (WOTUS) <a href="https://www.sba.gov/sites/default/files/Final_WOTUS%20Comment%20Letter.pdf"><span class="s2">did not significantly impac</span></a>t small businesses. Farmers appear to <a href="http://ditchtherule.fb.org/"><span class="s2">disagree</span></a> strongly.</span></p> <p class="p3"><span class="s1">It's easy to understand the sentiment behind a "Brexit" when the EU required farmers in the U.K. to buy <a href="http://robinphillips.blogspot.com/2007/05/review-of-how-to-label-goat.html"><span class="s2">£5,000</span></a> machines to label every egg as to when it was laid and the identity of the chicken. (Who knew they all had names?) But go or stay, the problem of regulation will remain in the U.K., just as it will in the United States. However, if the U.K. decides to leave the EU, there are some reforms they could undertake to begin to get control over the regulatory state.</span></p> <p class="p3"><span class="s1">First, set up the system to ensure legislators know what problem they are addressing. Make sure alternative ways to solve the problem are considered and that the benefits of the chosen solution exceeds the costs. This is known as a regulatory impact analysis. Make this a legal mandate, meaning that if an agency doesn't do it, anybody can go to court to stop the rule.</span></p> <p class="p3"><span class="s1">Second, don't pass legislation that gives agencies the authority to pass rules into infinity and with deference on their interpretations from the courts.</span></p> <p class="p3"><span class="s1">Third, sunset the legislation, provide for retrospective review and give the agencies a social budget cost to implement the legislation.</span></p> <p class="p3"><span class="s1">Finally, make agencies accountable to legislators. For really big rules, with a high economic impact, they should have legislative approval.</span></p> <p class="p3"><span class="s1">There are many, many bills before the U.S. Congress right now trying to implement some of these recommendations, but they are stalled. One reason they are stalled goes back to why we get so many of these rules in the first place: concentrated benefits and dispersed people bearing the costs in terms of lost businesses, lower wages and higher prices. If the U.K. does leave the EU, it should take this opportunity for a regulatory reset.</span></p> http://mercatus.org/expert_commentary/brexit-vote-referendum-european-union-s-thousands-stifling-regulations Thu, 23 Jun 2016 11:37:43 -0400